Consider the RMS Titanic over a century ago: built in the Irish port of Belfast to be even faster than its sister ship, the Olympic, this 45,000-ton ocean liner was to be the most sleek and elegant ship designed for trans-Atlantic crossings. The familiar tale is enshrined in our culture and reinforced by literature and cinema in countless haunting replays of the tragic events of April 14-15, 1912, a heart-rending episode that remains indelibly etched into the inherited memories of people across the world. No doubt the supposedly unsinkable leviathan of the oceans was built and owned by men blinded by their own arrogance. Surely the great ship on her maiden voyage was propelled as much by ego as by diesel fuel. This tragic episode that snuffed out 1517 lives pales in comparison to the tens of millions who would perish in more violent but less glorified ways in the Great War that soon followed. Yet to this day, “A Night to Remember” stands as a cautionary tale for all of humanity. And it shows the power of books and movies to prioritize and focus our collective view of history. Thanks to author Walter Lord in 1954 and filmmaker James Cameron in 1997, people worldwide are familiar with the excruciating details of the Titanic and its collision with the iceberg that night on the North Atlantic, but virtually no one has heard of the paddle-wheeler SS Sultana that went down near Memphis a few days after President Lincoln was shot in April of 1865, with the loss of even more lives than were lost on the Titanic, or the steamboat SS General Slocum that fatally burned or drowned 1021 picnickers on a church outing when it sank in the East River in 1904. Even the horrific and consequential wartime sinking of the Lusitania in 1915 by a German U-boat with the loss of 1198 of the 1959 people on board remains obscure or long forgotten from humanity’s collective memory. The coincidence of human error and the insatiable thirst for the spectacular in the popular media have made the Titanic the ultimate metaphor for unspeakably horrible tragedies that should never be allowed to happen.

Even though a long series of poor decisions and colossal hubris combined to sink the Titanic, it is clearly different from an actual conspiracy to do the same. For the word conspire means “to breathe together”, and there was no complicity among the principals of the Cunard Line or anyone else to destroy the ship. Of course there were many horrendous mistakes of judgment made by so many players in that drama… the shortsighted designers of the inadequate lifeboats and ostensibly watertight compartments, the owners of the ship hell-bent to cut corners in their urgency to earn profits, the captain rushing through frigid fog-shrouded waters at breakneck speeds through perilous northern seas off Newfoundland to beat the trans-Atlantic crossing record, the poorly trained and slowly responding crew, etc…. but there was never any evil conspiracy proven in any court of law or in expert public opinion. With all the slow motion drama, the band playing bravely until death, the heroism of saving the women and children first, the skullduggery by so-called cowards, and the obvious class divisions and preferences, it was the stuff of legend and was destined to be immortalized as the ultimate metaphor for unmitigated disaster.

The reader must be curious, “How does this painful object lesson from the twilight of La Belle Époque relate to the brave new digital world of physical gold in this millennium?” The parallels are apparent: Something intensely cherished rises to prominence among the wealthy in a heady bull market lasting more than a decade, but then plummets downward. And every trend or gyration of the market price is documented and publicized in infinite detail. One wonders if, even in the absence of any sort of blatant conspiracy among the major power centers influencing gold, the world economy might be heading at flank speed for another collision of critical factors in the precious metals market and beyond to the wider financial sector. And there may be no one at the helm to avert the calamitous result, or perhaps it is too late to make a turn to safer waters. The resemblance continues: Just as it was a century ago, each actor on the golden stage perceives and strives to control only a portion of the big picture. Each institution acts to defend its self-interest. Each nation protects its own tenuous prosperity. Every bank obeys the dictates of the bottom line. And all the investors search for highest possible returns at lowest possible risk. Those who already own the metal spout conspicuously and shamelessly in hopes of driving up demand, even as they predict the imminent collapse of fiat currencies and the prospects for “$10,000 gold”, a hyped illusion reminiscent of the myth of Cibola: The Seven Cities of Gold, whose mythic lure drove Coronado on his failed explorations of the Great Southwest. Meanwhile, those with a vested interest in traditional currencies rip into gold for falling thirty-five percent after its secular rise almost to $2000 per ounce, smugly confirming their judgment that stocks are the only way to invest prudently, and that gold was just in a manic, fragile, and unsustainable bubble that has deflated forever.

Indeed, many factors have combined to put pressure the gold market from all directions, whipsawing the price in ways that investors find distressing. Although evidence of a conspiracy has been very hard to find and would be even more difficult to prove, the coincidence of myopic visions of what is right and wrong in the gold market has produced the potential for a titanic outcome that could shake a centuries-old system. A few of the more consequential forces at work in the international marketplace are enumerated here:

First, there is a global thirst for a more secure, enduring, and reliably stable medium of exchange for trade and finance. An asset class is sought that would be based upon a more solid foundation than the facile promises made by those who print fiat currency in amounts expedient for their own short-term economic needs and political aspirations. This immediately places gold and gold-backed currencies in the limelight, even as others innovate boldly through various forms of crypto-currency such as Bitcoin that are based on confidence in their limited supply and their obscure location, presumably outside the reach of the banking system and powerful governments. However, the shelf life and viability of such alternative virtual currencies remains to be seen. And such invisible currencies are competing with tangible gold that has been trusted for several thousand years. There is a palpable longing for new forms of money in the quest for a reliable medium of exchange that would resist the erosion of value resulting from inflation. And the seeds of a financial meltdown are detected in the decisions among the central banking authorities in G-19 nations on currency matters that are usually uncoordinated when push comes to shove. This is especially evident when internal politics moves away from an international perspective as occurred under the nationalistic Trump in the US after the unpopular wars and deep recession of this new century. The fog begins to close in.

Second, there is a temptation to resort to specious accounting methods when domestic economic pressures build to dangerous levels. Central bankers too often try to stretch the clout of their gold reserves by instituting a de facto fractional reserve system for their stocks of gold, with leasing schemes for the unallocated metal that encourage serious doubt among citizens about the integrity of government auditing practices and about the very existence of the amount of gold allegedly in the vaults. This is reinforced whenever central governments appear to be overly guarded about allowing careful auditing of gold supplies. This may explain the desire by Germany to repatriate its substantial physical gold supply from vaults in other countries. Whether just rumored or well-documented, this deep-seated wave of skepticism seeps into the investor class, particularly in this unsettling era when national governments have been caught red-handed in other transgressions of the public trust such as spying on each other and their own citizens, jailing those suspected of terrorism indefinitely without trial, or printing money under the euphemism of “quantitative easing” to avoid the necessity and electoral cost of raising taxes or slashing popular social and defense programs. Concomitantly, these non-conspiratorial actions catalyze the spreading lack of trust that the gold reserves of each country can serve as a source of stability. This pervasive attitude degrades the reputation of paper gold or physical gold alike as reliable components of a prudently balanced portfolio. The lifeboats may be too small to handle the flood of passengers.

Third, there is the record of market performance in gold that has all the questionable hallmarks of deliberate price manipulation. Sudden computer-triggered falls in price have an impact on volatility and can undermine the sense of permanence and confidence that gold ordinarily engenders. Rampant speculative instruments are designed to give investors leverage beyond any reasonable need. Instantaneous purchases or sales at large scale by extremely wealthy individuals, large institutions, or central banks, especially if timed in a way that looks suspiciously strategic after a rise in gold prices, can heighten suspicions among investors about some type of concerted action afoot to drive the price of gold down. This would be done in order to shore up the value of a fatigued fiat currency or just to provide a quick profit from the contrived price fluctuations. Meanwhile, commercial banks and other large institutions are observed selling short the very gold they might be recommending to their clients and depositors, a practice that seems rather cynical and at variance with their fiduciary responsibilities. Hedging bets and tactical market timing become obsessive, supplanting the wisdom of long-term term risk mitigation or the careful pursuit of incremental returns. The strength of gold as a strategic investment is potentially compromised by the noise, distractions, and short-term perturbations emanating from a host of players in the gold space. The speed generated by the twin screws may overwhelm the fog-obscured eyesight of those who stand watch on the bridge.

Fourth, there is the well-documented reluctance of Americans, when compared to the Chinese, Indians, and Middle Easterners, to invest in gold for a range of cultural and experiential reasons. Opportunities to add gold in efficient, statistically valid amounts to a portfolio of wealth at the family office or institutional level are too often lost. They are indefinitely postponed and subverted by a lack of convenient low-cost ways to access and take ownership of sufficiently liquid supplies of precious metals at the requisite scale and in preferred locations. Fiduciaries and investment consultants who look askance at gold as an investment or as a diversifier may be too slow on the uptake when basic market conditions change in the gold market. The undetected armada of ice is carried southward into the shipping lanes by the inexorable Labrador current.

These four factors in concert produce gold prices that are more volatile than they otherwise would be, creating a schizophrenic marketplace teetering uneasily between those who love gold and expect it to soar, and those who shun gold and sell it short, hoping it will falter. The quiet equilibrium of supply and demand is buffeted by the hype, the speculation, the shorting, the stock-pickers, the central and commercial bankers, the miners, and the investors, all desperately hungry for a capital gain in another lucrative bull market in their favorite asset classes. No one player on the global stage need coordinate the drama, for each actor, working in his or her self-interest, serves a vital role in his own bailiwick. But as an ensemble, we have an eerie sense of foreboding that the all the conditions conspire for an imminent impact with a financial iceberg as we power through the losses of descending night. And from the bridge of the Titanic on the North Atlantic came the urgent command, “ All ahead full!”

What lessons can be learned by this chilling parallel? Perhaps we should spend less time imagining, embroidering or even denying elaborate global conspiracies among scores of interested parties who remarkably never leave a trail of evidence. And we might instead devote more time to understanding the tidal forces, strong incentives, industry-wide practices, global interdependencies, and irresistible momentum that need no cabal to propel the market across the unforgiving financial waters at unsustainable speeds, no surreptitious codes to coordinate their internecine workings, no secret meetings to rig the trading system. However, the collective influence of all the actors in the gold market, even if each is performing as scripted in pursuit of entirely legitimate goals, can often give the appearance of some deeper level of evil worthy of an Ian Fleming novel. And like the Titanic disaster, a large and sudden rise or fall of gold prices would steal the headlines.

But there is hope to steer clear of chance collisions with a new generation of daunting icebergs that are inevitably lurking in unfathomable passages between here and the obscured future. The same forces investors fear can be harnessed instead to “breathe together” to steer the ship toward safe harbors, if people would strive to deflate the talk of conspiracies and instead heighten their knowledge of how gold can more effectively work to provide financial security in a world of uncertainty. In the wake of the global war on terrorism, the insidious growth of the winners-take-all economy, and the deepest recession since the Great Depression, the world’s vulnerable financial system cannot afford a titanic calamity. Not now, and not ever.

Roy Van Til, Ph.D.
Vienna, ME USA
royvantil@mac.com
April 14, 2017