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Gold’s Official Price is $42, and maybe that’s a Good Thing

Friday the 19th of October 2018
This blog post is a guest post on BullionStar's Blog by the renowned blogger JP Koning who will be writing about monetary economics, central banking and gold. BullionStar does not endorse or oppose the opinions presented but encourages a healthy debate.

People often whisper conspiratorially about the age-old U.S. practice of fixing the gold price at $42.22. "They're just trying to keep gold down," is a complaint I've heard more than a few times. But in this post I'll show that the monetary authorities have sound reasons for keeping the price of gold at $42.22.

Below, I've charted out the history of the U.S.'s official gold price. As you can see, the $42.22 price has been maintained since 1973, an odd-seeming state of affairs given that gold is currently hovering at around $1225. The practice of setting an archaic price for the yellow metal looks even stranger when we consider that central banks all over the world have adopted the habit of using the market price of gold to value their gold reserves.

finikin U.S. official gold price, 1900 to 2018

US Monetary Gold

To understand what is at stake, let's start with a few stylized facts about U.S. monetary gold:

  1. Central banks that keep gold on their balance sheet tend to hold physical gold. But the U.S. Federal Reserve doesn't actually hold physical metal. Instead, it owns gold certificates.

  2. The Fed registers the value of these gold certificates on its... Continue Reading
By: JP Koning
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