Gold market analysts have for many years puzzled over the unusual behavior of the gold market during the 1990s, specifically the bizarrely flat gold price from 1993 to 1996 in the face of sustained selling pressure from central banks and gold miners hedging their production. To-date no one has been able to identify the hidden source of demand that was obviously supporting the gold market during that period.
In addition, conventional justifications that accelerated sales by central banks after 1996, which broke the gold market and drove the price down over 35% from $400 to $250, were just portfolio readjustments and have been rejected by many analysts who instead see them as a conspiracy to suppress the gold price to ensure support for fiat currencies. But what if there was another more pressing reason for such central bank desperation?
The chart below shows the gold price in US dollars(1) compared to the combined gold sales volume (in millions of ounces) by central banks and gold miners during the 1990s. Note that during this decade the red line is always below zero, indicating sales of gold every quarter, and logically we should expect that such large and continuous sales would result in the gold price falling. You can see that during the beginning of the decade (marked 1 on the chart) that the gold price fell from 1990 through to 1993, in line with increasing volume of sales. However from 1993 through to 1996 the gold price rose and then was unusually stable for three years, even though there was a significant increase in sales during the periods marked 2 and 3 on the chart. It was only in 1997 that the gold price finally broke down.
Remarkably, the first of a series of history books key to understanding this period in the gold market as well as the tumultuous 1970s gold bull market was published on 26 June 1997 right in the middle of the late 1990 gold bear market. This book, and the subsequent six other works published from 1998 to 2007 have been studiously ignored by all mainstream and unorthodox gold analysts to-date, even though they provide an explanation of this otherwise puzzling market behavior. In this article I will reveal for the first time this hidden history and its impact on the gold market.
Falling for “Fiction”
The reason these historical works have been ignored is of course because many consider them works of fiction and fantasy. This is not surprising as Muggles are known for studiously ignoring what is clearly magic and rationalizing away the existence of wizards and witches(2). To be fair, the choice by JK Rowling to use an engaging storytelling style to explain this period of Magical history rather than a fact-laden dry approach often taken by historians has helped the perception that her works are fiction. It should also be noted that given the 1689 International Statute of Secrecy the Ministry of Magic would have only approved the publication of what is Harry Potter’s biography as long as JK Rowling presented it as fictional. The associated movies, merchandising, theme parks and so on have certainly helped in this regard and fooled many Muggles while at the same time generating additional revenues for JK Rowling and Harry Potter himself (who no doubt earns royalties on his story from Rowling – the widespread view(3) amongst magic-aware Muggles is that the Muggle publication of the Harry Potter biographical books was just a way for JK Rowling and Harry Potter to make further money from what was no doubt also a best-seller within the Magical world).
For gold market analysts seeking a complete picture of the gold market, analysis of the Harry Potter books is essential. This is because unlike Muggles, the magical monetary system operates completely on gold, silver and bronze coinage – there is a complete lack of paper (or fiat) money and debt-backed money as used in the Muggle world. Right from the very first Harry Potter book it is clear that the vaults of Gringotts Wizarding Bank’s are massive and filled with gold and other treasure(4). This is not surprising as the amount of gold necessary to sustain a purely physical gold based economy would be large and there are hints throughout the books that many of the older and richer magical families hold substantial hoards of gold in special high security vaults hundreds of miles under London(5).
It should be noted that while not mentioned explicitly in the books, gold would have to be one of the five Principal Exceptions to Gamp’s Law of Elemental Transfiguration(6) because if gold could be created by wizards and witches the subsequent uncontrolled production of it would make it worthless. Additionally, while the magical abilities of witches and wizards means they are not as constrained as Muggles, magic does not transcend the iron laws of economics and thus the opportunity for arbitrage profits between the Muggle gold price and the value of gold in the Magical world necessarily means that gold flows between the two worlds. The combination of this interplay between Magical and Muggle gold markets and the existence of large Magical world gold stockpiles makes it vital for any analyst to understand the operation of the Magical monetary system.
Before we can discuss the 1990s gold market however, and the reason for the co-ordination between Muggle central banks and the Ministry of Magic, it is necessary to review two prior turbulent periods of Muggle history which were also associated with dark times in the Magical world.
World War Two
The first period of Muggle history which had a connection with the Magical world was World War Two, which lasted from 1939 to 1945. In the Magical world 1940 marked the beginning of “five years of turmoil, fatalities and disappearance”(7) instigated by dark wizard Gellert Grindelwald, who raised an army(8) to force Muggles into subservience to wizards(9) and which included plans for Muggle torture(10). Dumbledore defeated Grindelwald in 1945(11). The coincidence of the timings of the Muggle and Magical wars infers that there was certainly some relationship between the two events and it would be surprising if Grindelwald’s did not interfere in the Muggle war and support Axis powers to further his evil objectives.
The second period was the 1970s. Voldemort’s first reign of terror started in late 1970(12) and finished in October 1981 when his Killing Curse on Harry Potter backfired on him(13). Again, it seems highly coincidental that this period of Muggle history matches a period of turmoil in the Muggle world. While JK Rowling has not provided many details of this period, it is likely that Voldemort, like Grindelwald before him, would have intervened in the Muggle world to further his aims (note that Voldemort attended Hogwarts from 1938(14) to 1944 and would thus have been influenced by the Muggle and Magical wars and Grindelwald’s methods during his formative years).
One manifestation of this disarray was the dramatic increase in the gold price during the 1970s, as shown in the chart below. Just as Muggles seek to hoard gold as a way to protect their wealth during unstable economic times, it is reasonable to assume wizards and witches would have also hoarded gold in response to the troubles in their world. Which source of demand would have impacted the Muggle gold market more is impossible to determine from JK Rowling’s history but given the extent of Voldemort’s terror, demand for gold in the Magical world must surely have been significant.
I have also included the volume of sales of gold (in millions of ounces) by Muggle central banks during this period. Note that during the first half of the 1970s, marked 1 on the chart, Muggle central bank buying and selling was minimal. While JK Rowling does not indicate how long it took for Voldemort to gather enough supporters to begin to have a serious impact on the Magical world, we do know that Harry’s parents and their friends were important and active members of the Order of the Phoenix, which they would only have been able to join after leaving Hogwarts School of Witchcraft and Wizardry.
It is therefore likely that Voldemort’s terrorist attacks accelerated from 1977 onwards and this thesis is supported by the fact that Muggle central banks dramatically increased their sales of gold to 4 million ounces per quarter from this point onwards (marked 2 on the chart) in an attempt to suppress the effect of witch and wizard gold hoarding on the Muggle gold price. If such buying activity was not countered, the resulting dramatic increase in the gold price would have sent an alarming message to Muggle investors and exacerbated an already strained Muggle world. This selling ultimately proved ineffective with the pricing rising, albeit mutedly, in the late 1970s, finally exploding in 1980 as Muggles responded to their own political and economic problems by buying gold.
It seems reasonable to conclude that after both of these periods where Magical world events impacted on the Muggle world in dramatic fashion (Magical armies, Muggle torture), that Muggle and Magical authorities would have realised more co-ordination was required to prevent spill over effects into the Muggle gold market (as many Muggles do look to the gold price as an indicator of political and economic trouble). Thus, while there may not have been any formal plans drawn up after the 1970s by Muggle and Magical authorities to work together in the face of any future disturbances, it is probable that they both would have been more willing to be proactive next time around to avoid unnecessarily alarming Muggles.
With this historical background the behaviour of the gold market during the 1990s begins to make more sense. The chart below shows the chart presented at the beginning of this article but with key Magical world events identified.
At the bottom of the chart I have shaded two periods. The first – Order of Phoenix Aware – indicates the period during which those aligned with and in the confidence of Albus Dumbledore would have been aware that Voldemort had not died and that he and his supporters were working for his return. We can expect that such informed individuals would have begun precautionary hoarding of gold but given the small size of the group at that time this would not have had any impact on the Muggle gold price.
However, the escape of Sirius Black would certainly have concerned the Magical world and resulted in some initial gold hoarding. We know from the first chapter of the sixth book that the Minister for Magic visited the British Prime Minster when Sirius Black escaped and subsequently at each time the other events listed in the chart above occurred(15). For those unfamiliar with the gold market, it should be noted that London is the centre of worldwide gold trading and that many Muggle central banks hold their gold reserves at the Bank of England. It is therefore not surprising that following the Minister for Magic’s visit about Sirius Black’s escape that central bank selling of gold was increased (the is precedent for co-ordinated central bank gold market intervention centred in London – see the London Gold Pool). The appearance of Voldemort’s Dark Mark at the Quiddich World Cup, which would have no doubt result in further gold hoarding by wizards and witches, coincides with further increases in central bank selling. These pre-emptive actions appear to have been successful as the gold price was stable during this period.
The second period – Magical Public Aware – marks the point at which the Magical public were made aware of Voldemort’s return by Harry Potter when he escaped from Voldemort on the day of the third Triwizard Tournament task(16). Note that Muggle central bank selling scaled back after this, due in part to the fact that initially the Ministry of Magic went on a concerted public relations campaign to discredit Harry Potter that may have eased general wizard and witch concerns.
However, the mass breakout from the Magical prison Azkaban(17) would have driven yet more gold hoarding by witches and wizards, who, even if they did not believe in Harry Potter’s claims of Voldemort’s return, would still have been concerned about such a breakdown in Magical security. It is therefore not surprising that Muggle central banks flood the gold market with sales well in excess of those made earlier in the 1990s and those made during the 1970s, peaking toward the end of 1996 when Voldemort finally revealed himself in public when he duelled with Dumbledore within the Ministry of Magic itself(18).
Note that the Muggle gold price was still holding up even though over 10 million ounces of gold per quarter was being sold by Muggle central banks. The only way this is possible is if there was a huge surge in gold buying in the Magical world, enough to neutralise such large sales volumes. However in 1997 the gold price breaks down as Muggle investors interpret such large selling by their central banks as a repudiation of gold. Of course the heads of the various governments could not reveal the true reason for these sales, instead claiming they were about central bank investment portfolio rebalancing. In conjunction with this lack of interest by Muggles in gold, the gold market would have also seen a reduction in Magical buying as most wizards and witches would have hoarded what they felt was necessary by late 1996 and early 1997.
With the fall of the Ministry into Voldemort’s hands in the 3rd quarter of 1997 any cooperation with Muggle authorities would have ceased and hence we see a reduction and stabilisation in Muggle central bank selling. The death of Voldemort in May 1998 resulted in dishoarding of gold by wizards and witches and thus it is not unexpected that the gold price tumbles down to its lowest point over the year following Voldemort’s death even though Muggle central bank selling was stable.
This article has shown how the behaviour of the gold market during the 1970s and 1990s was impacted by events in the Magical world and revealed the real reason for a large amount of Muggle central bank activity in the gold market during this period. While it may have answered many gold analyst questions, the acknowledgment of the existence of a Magical gold market raises many more questions, including:
- How does the Magical Monetary System and general Magical economy work? While it seems many witches and wizards work in commercial enterprises, there does appear to be an inordinately large number of people employed in the Ministry of Magic(19).
- Are wizards and witches banned from transacting in Muggle gold markets and do goblins have exclusive rights to arbitrage Muggle and Magical gold via their banking monopoly?
- Are goblins required to deal exclusively with the Bank of England or Bank of International Settlements in the gold arbitrage activities or are they free to trade in any Muggle gold market?
- How is the ratio between gold, silver and bronze in the Magical world of 1 Galleon to 17 Sickles to 493 Knuts maintained when their prices in the Muggle world fluctuate?
It is doubtful that JK Rowling has any interest in detailing such mundane market mechanics and thus until the Magical community decides to reveal itself to the stubbornly ignorant Muggles, gold market analysts will be left in the dark. There is one advantage to this state of affairs however, and that is that analysts will be able to blame “unknown magical forces” should their gold price predictions fail to materialise.
In the endnotes below, quotes from the canon (that is, the official JK Rowling Harry Potter biographies) are referenced as [book# : chapter# : page#]. Book and chapter numbers are included should page numbers differ in your version of the printed books.
1. Average quarterly London Gold Fixing gold price in US dollars. Central bank and miner sales volumes are a three period moving average.
2. [2:3:34] no Muggle would admit their key keeps shrinking – they’ll insist they just keep losing it. Bless them, they’ll go to any lengths to ignore magic, even if it’s staring them in the face
3. A less mainstream alternative theory as to why the Ministry of Magic approved the publication of the Harry Potter biographies is that after the wholesale clean out of the Ministry of Magic following Voldemort’s defeat a new policy of Glasnost was implemented with the objective of testing Muggle attitudes towards wizards and witches. This view theorises that the Harry Potter books are a public relations campaign to position wizards in a positive light and counter centuries of fear and misunderstanding. If the Muggle response is positive, further steps would be taken to slowly move the Muggle world towards acceptance of Magic and at some suitable point in the future, the mask of “fiction” would be peeled away and wizards and witches will reveal themselves to a suitably sympathetic Muggle world.
4. [7:24:396] It is against our code to speak of the secrets of Gringotts. We are the guardians of fabulous treasures. We have a duty to the objects placed in our care, which were, so often, wrought by our fingers.
5. [1:5:51] The say there’s dragons guarding the high security vaults … Gringotts is hundreds of miles under London
6. [7:15:241] Food is the first of the five Principal Exceptions to Gamp’s Law of Elemental Transfiguration … It’s impossible to make good food out of nothing! You can Summon it if you know where it is, you can transform it, you can increase the quantity if you’ve already got some
7. [7:18:293] Dumbledore delayed, for some five years of turmoil, fatalities and disappearance, his attack upon Gellert Grindelwald.
8. [7:35:575] But while I busied myself with the training of young wizards, Grindelward was raising an army.
9. [7:35:573] Muggles forced into subservience. We wizards triumphant. Grindelwald and I, the glorious young leaders of the revolution.
10. [7:35:574] Grindelward fled, as anyone but I could have predicted. He vanished, with his plans for seizing power, and his schemes for Muggle torture
11. [1:13:160] his defeat of the dark wizard Gindelwald in 1945
12. [4:2:23] Harry had been a year old the night that Voldemort … a wizard who had been gaining power steadily for eleven years
13. [7:16:268] The text says that Harry Potter’s parents died 31 October 1981, which was also the day Voldemort attempted to kill Harry.
14. Tom Riddle was born on 31 December 1926 (see https://www.pottermore.com/explore-the-story/lord-voldemort). He would have turned 11 in December 1937 thus only making him eligible to attend Hogwarts in 1938 (Hogwarts school years start 1st September). See also http://www.hp-lexicon.org/essays/essay-voldemort-childhood.html
15. [6:1:9] The Prime Minister … was not remotely pleased to see Fudge, whose occasional appearances, apart from being downright alarming in themselves, generally meant that he was about to hear some very bad news.
16. [4:26:440] The third and final task will take place at dusk on the twenty-fourth of June
17. [5:25:481] mass breakout from Azkaban, on Monday, first day back on third term in January
18. [5:38:745] In a brief statement on Friday night, Minister for Magic Cornelius Fudge confirmed that He Who Must Not Be Named has returned to this country and is once more active.
19. While not complete, the list below of those Magical government departments and offices mentioned in the canon does imply a degree of Magical government bureaucracy well in excess of the excessive levels that Muggles have to endure:
Ministry of Magic
Minister for Magic
- Support Staff
- Senior Undersecretary to the Minister
- Wizarding Examinations Authority
Department of Magical Law Enforcement
- Improper Use of Magic Office
- Committee of Experimental Charms
- Registry of Proscribed Charmable Objects
- Council of Magical Law
- Animagus Registry
- Auror Office
- Magical Law Enforcement Patrol
- Magical Law Enforcement Squad
- Wizengamot Administration Services
- Misuse of Muggle Artefacts Office
- Ludicrous Patents Office
- Office for the Detection and Confiscation of Counterfeit Defensive Spells and Protective Objects
Department of Magical Transportation
- Floo Network Authority
- Floo Regulation Panel
- Broom Regulatory Control
- Portkey Office
- Apparation Test Centre
Department of Magical Accidents and Catastrophes
- St Mungo’s Hospital for Magical Maladies and Injuries
- Accidental Magic Reversal Department
- Accidental Magic Reversal Squad
- Obliviator Headquarters
- Office of Misinformation
- Muggle-Worthy Excuse Committee
Department of Muggle Relations
- Muggle-born Registration Commission (only during Voldemort’s control of the Ministry)
- Muggle Liaison Office
Department for the Regulation and Control of Magical Creatures
- Committee for the Disposal of Dangerous Creatures
- Beast Division
- Werewolf Registry
- Centaur Liaison Office
- Werewolf Capture Unit
- Dragon Research and Restraint Bureau
- Pest Sub-Division
- Pest Advisory Bureau
- Being Division
- Office for Werewolf Support Services (closed)
- Office for House-Elf Relocation
- Goblin Liaison Office
- Spirit Division
Department of International Magical Co-operation
- International Magical Trading Standards Body
- International Magical Office of Law
- International Confederation of Wizards, British Seats
Department of Magical Games and Sports
- British and Irish Quidditch League Headquarters
- Official Gobstones Club
Department of Mysteries
Department of Magical Maintenance
Other Non-Governmental Organisations
- Wizengamot (Wizard High Court)
- Grintgotts Wizarding Bank
- International Federation of Warlocks
- International Confederation of Wizards
- International Confederation of Wizards Quidditch Committee
- International Task Force
- Most Extraordinary Society of Potioneers
- Wizarding Academy of Dramatic Arts