The International Monetary Fund is in the process of revising the laws that govern the trading of gold by the world's central banks which will radically change the ability of central bankers to suppress the gold price, a major factor depressing the price of the yellow metal that has been an open secret for years.
This sort of systemic market reform will likely have a huge impact on the gold market. It is like the 'Big Bang' changes to world stock markets that started in the 1980s and led to an explosion in equity ownership and higher price-to-earnings ratios.
That gold prices have been artificially depressed for decades is not hard to establish. Consider the nominal peak oil price last year of $78-a-barrel, twice the previous nominal peak value reached in 1980. Gold by comparison hit $725 an ounce last year, yet is still below its nominal peak value in 1980.
What has been happening is that central bankers have been swapping and loaning gold in the gold market to keep the price down to produce another false indication that inflation is under control.
Some analysts allege that they have actually now lent considerably more gold than they have in their vaults, so the world's gold's reserves are smaller than reported; and the lack of gold audits from central banks just adds to this suspicion.
The IMF has been reviewing all aspects of the gold trade by central banks for the fifth edition of its Balance of Payments Manual which includes the regulations governing gold swaps and loans. IMF officials told ResourceInvestor.com that a draft edition will be posted for worldwide comment within two months.
It remains to be seen whether the central banks now manage to sabotage this attempt to control their alleged gold market manipulation. But the very publication of the draft rules, which have clearly been endorsed internally by the IMF, throws down a major challenge to the banks.
For gold traders, and even the general public, the suppression of the gold market is pretty obvious. Market news that should move the gold price up is often anticipated by the central banks which appear to shuffle a few transactions between themselves to send the price in the opposite direction.
Gold cartel to fall?
But such is the growing size and interest in the gold market that participants are increasingly ganging up in protest at such blatant manipulation that would not be tolerated in any other financial market. It looks as though the IMF has decided that enough is enough and decided to call it a day.
The ending of any price suppression or cartel in a market is usually a bullish signal. What would the gold price be in a free market without the central banks swapping and loaning gold amongst themselves?
Well, it does not take much imagination to see that a rebalancing of gold's position relative to other assets and currencies would follow. That the IMF has now put the gold market out for open discussion is clearly the first step towards a new era for the yellow metal.
How long that era will take to arrive is still a matter of conjecture. But the idea of stocking up on gold while prices are still low has intrinsic appeal; or buy silver or other precious metals which would also rise alongside the gold price, perhaps even higher.