Appendix: Are the Stock and Gold Markets Manipulated?


This is a topic that comes up periodically from our readers, and so far we have ignored the issue in our writings. It is sometimes brought up as a reason for short-term movements in the market. There are really two parts to this issue: (1) the manipulation of bonds, foreign exchange, and banking markets; and (2) the manipulation of the stock and gold markets.

In terms of the first part, the Fed clearly and pretty openly manipulates the bond markets, the foreign exchange markets, and directly manipulates the banking markets. Open market operations, in which the Fed buys and sells Treasury bonds, clearly manipulate the bond markets. When the Fed buys Freddie Mac and Fannie Mae mortgage collateralized debt obligations (CDOs), it is clearly manipulating the mortgage market and indirectly the entire bond market.

The Fed uses foreign currency swaps, where the Fed lends money to foreign central banks, to manipulate foreign exchange markets.

The Fed directly manipulates the banking market by making it easier for banks to profit by lending to them at very low interest rates and allowing them to lend to consumers at significantly higher interest rates. The Fed essentially lowers the banks’ cost of goods sold—their “goods” being money. This also manipulates the value of their stock and their ability to raise more capital by making them more profitable.

Also, by manipulating the ...

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