A Gentleman's Agreement

Richard Zimmerman
December 9, 2010

Following the 1980 price peak in gold, there was a sell-off that probably left more than one investor wondering if precious metals had completely lost their luster. The Hunt Brothers' manipulation of the silver markets also added its own tarnish to the world of bullion. As these two markets march to fresh highs this year, it is time to think about what pulled both markets down and why support may come at a higher level than you think.

As mentioned in previous reports, catalysts for rising prices include geopolitical tensions, inflation, and a host of other fear-inducing fundamentals. The jittery reaction to uncertain world and economic conditions doesn't always cause the pendulum to swing towards higher ranges. There is one thing in particular that can make gold buyers into gold sellers. That is an increase in gold sales from large banks or investors.

This fear was one of the biggest culprits for the most recent low price in gold.

In the late 1990s, there were a number of gold sales that were thought to be impacting the broader market. Sales were coming from central banks including Bank of England auctions and other European nations. The result of rumors over more central bank sales, especially considering the lower prices for gold, was a threat of destabilizing the market. Since central banks held so much of the physical gold at the time, some of them came together to take action to prevent a rapid decline in prices. The result of their meeting was a gentleman's agreement on gold sales......read on