ANALYSIS
Basic analysis
From this grouping we can clearly see that there are indeed three groups of countries. Those who planned and executed the sell-off, those who did the sell-off and those who never believed them. This means that there were countries who sold gold, countries who did nothing and countries who bought gold. It is for this reason that the world reserves of gold in central banks remain more or less constant. What came out of one group was absorbed by the other. What we are seeing today is nothing more than the continuation of this trend. What is coming out of third world countries and EU countries desperate for money and in deep, deep debt is being absorbed by Eastern European countries and China. The problem with most (we would say all) analysis of gold fluctuations by central banks is that they look at one group in isolation when in reality they should be looking at the whole situation.
This process proves that gold, just like any other commodity is indeed money. Central bankers treat gold as money insofar that they are using it to trade with each other (through the BIS) and to stabilize their currencies and prepare for the future. As the future is unwritten and internal political situations different, every country will produce their own analysis and will act accordingly. Furthermore, we must never forget that when it comes to fiat money, large economies have disproportionate influence over smaller ones. Thus, what US or Germany or Japan "suggest", it is usually done.
Is gold really there?
But even this is not the whole story. It so happens that "lease-gold" agreements were also part of the sell-gold agreements. You see dear reader, as central banks began to sell gold, it dawned on central bankers that they had a pile of yellow metal sitting in their vaults whose price was dropping significantly while they were getting no profits out of it. So they decided to "lease" (i.e. rent) the gold to so-called "Gold-Banks". These banks figured out a very lucrative deal. They leased gold from central banks at rock-bottom prices, they sold the gold in the free market and re-invested that money in fixed-income instruments (i.e. fixed profits) such as bonds. Once the bonds expire and the profits were collected, the capital would be used to buy the gold back in the free market and return it to central banks. In theory this was a great deal. In theory. But there was a tiny flaw in the plan. Once the gold banks sold the gold and invested the money, the price of gold began to rise far beyond the value of the investment. Consequently, once the term of the investment was over, gold banks had insufficient capital to buy gold back and return it to central bank vaults. Game over. We really do not know what happened with this situation and if you Google it you will find all kinds of plausible explanations (the operative word being plausible). However, what you will not find is the definitive answer to what happened. The most probable outcome is that central bankers swept the whole thing under the rug and kept the "leased" gold in their book as if it would exist while extending (essentially forever) the duration of lease agreements with gold banks.
The reason why central banks would do so is simple. If you owe a 10000 Bath to a bank and you can't pay, you are in trouble. However, if you owe 10 billion Bath, the bank is in trouble. The notion that central bank gold is gone for good would trigger a cataclysmic financial event and this is not acceptable by political masters. Hence, the charade will continue to eternity. The big question is, of course, how much gold is actually still there. Nobody knows and nobody will ever know. "Don't know, won't find out" is the motto central bankers use all the time in this situation. Also part of the long con.
Paper gold
If you try to correlate the amount of gold in the possession of central banks and its price, you will notice that the correlation is quite poor (-0.635 to be accurate and for those with statistical fetishes). This can be seen intuitively in the graph below:
Which means that something else, something quite powerful must be at work here. This something else is the so-called "paper gold". You will notice that if you go to any commodity market you will find that although physical gold is being traded, the amount of metal actually traded is ridiculously miniscule when compared with gold futures and options. Is through these futures and options that central banks manipulate to a very large degree the price of gold. Not only that, but central banks also do so with all kinds of other key indices, particularly the S&P in US through what was originally denominated the "Plunge Protection Team" (or PPT, Google it for more information). But the PPT is old news. It would seem that lately (probably since around 2001) a slurry of other teams from governments throughout the world are hard at work supporting the markets. They do so through futures because it is the futures that generally determine the price of the underlying commodity and not the other way around.
Can you imagine the power such a trader would have at his/her fingertips? Unlimited funds unconstrained from profit and loses as well as time and no paper trail to be worried about! Capable of sustaining whatever trades policies demand for as long as necessary. Furthermore, during "off" days such a trader would be able to make incredible gains by short time market manipulation. This is so because such manipulation requires far few loses (if massive enough) to trigger a temporary sell while then taking a fair amount of time for the recovery to take place which can be used to make handsome profits. Yes. There are all kinds of hints "out-there" pointing towards governments making huge profits of markets. This is also part of the long con.
WHY IS THIS IMPORTANT
But why should you care, dear reader, what central banks do or do not do with "their" gold, right? Well, you should. To begin with, even if you are not libertarian, gold is the only thing that prevented countries from printing like drunken printers and hence devaluating your money (i.e. diminishing your wealth); see for example Fake Money For A Fake Economy or Real Money For A Real Economy. Also, gold is the ultimate wealth savings vehicle, but thanks to government manipulation, this is now only true over very, very long time periods of time. If you are not a trader who can go in and out of a market at a moment's notice, it only make sense to hold gold for decades; anything less is unthinkable.
In addition, by utterly destroying peoples' confidence and even knowledge of gold as money (see Gold Is A Shiny Beacon Of Hope), they have managed to delay political evolution by making people utterly dependent from central banks. Nowadays central banks giveth and central banks taketh away. In so doing they have managed to make people dependent from politicians and socialism. They have managed to make people believe that there is no political life beyond democracy and socialism. They have poisoned their minds.
Many people believe that power comes from the end of a gun, this is not so. Real power comes from the control of money and money is the one critical thing that it is too important to leave in politicians' hands.
CONCLUSION
The reason why the price of gold makes no sense whatsoever, even more considering that its production is slow (total worldwide extracted gold increased by 60% since 1950 while it price increased by 5000%!!!), is because governments throughout the world are involved in long con activities to manipulate other central banks into buying (but mostly selling) their gold. If this would not be bad enough, they further increase manipulation through gold-leasing and heavy intervention in gold future markets. This intervention seems to be so large that it is possible that it overtook the effects of gold selling agreements and gold lease operations. Why take chances playing with physical gold if the same result can be achieved through the manipulation of the markets using what is, essentially, an unlimited supply of fiat money.
Note: please see the Glossary if you are unfamiliar with certain words.
