"Black Friday" - The Great Gold Crash...Of 1869

Tyler Durden's picture

When one thinks of gold crashes, one typically visualizes a trading floor from the 1980s onward, predicated by Nixon's nixing of Bretton Woods 40 years ago, which removed gold from the list of accepted currencies and converted it into a government-manipulated pariah, whose core function was to be suppressed in an ongoing (failed) attempt to make the dollar the undisputed reserve currency (something even China comprehends). Well, readers may be surprised to discover that one of the first, and probably biggest on a relative basis, documented gold crashes was not 3 weeks ago, nor back in October 2008, nor any time since the advent of Nixon, or even the Federal Reserve, but over 140 years ago, on September 24, 1869 when a massive gold price manipulation scandal created a financial panic. That day, also known as "Black Friday", was the culmination of an attempt to corner the gold market following the latest, however brief, termination of the gold standard, when during the reconstruction period following the US Civil War, the US dollar was backed not by gold, but simply by credit (sound familiar). The result was a surge, and then collapse in gold.

What is the take home, if any? Perhaps that any time the government attempts to interfere with gold's status as a natural safety currency, it is not only gold price discovery that suffers, but virtually every other asset class, as central planning once again tries to order capital flows, however inefficiently, always, and without fail, leading to financial catastrophe.

The chart below demonstrates the intraday swing from that long ago Friday 142 years ago:

For those curious to learn about one of the first record gold price manipulations... and crashes, can do so below, courtesy of Wikipedia.

Black Friday, September 24, 1869 also known as the Fisk/Gould scandal, was a financial panic in the United States caused by two speculators’ efforts to corner the gold market on the New York Gold Exchange. It was one of several scandals that rocked the presidency of Ulysses S. Grant. During the reconstruction era after the American Civil War, the United States government issued a large amount of money that was backed by nothing but credit. After the war ended, people commonly believed that the U.S. Government would buy back the “greenbacks” with gold. In 1869, a group of speculators, headed by James Fisk and Jay Gould, sought to profit off this by cornering the gold market. Gould and Fisk first recruited Grant’s brother-in-law, a financier named Abel Corbin. They used Corbin to get close to Grant in social situations, where they would argue against government sale of gold, and Corbin would support their arguments. Corbin convinced Grant to appoint General Daniel Butterfield as assistant Treasurer of the United States. Butterfield agreed to tip the men off when the government intended to sell gold.

 

In the late summer of 1869, Gould began buying large amounts of gold. This caused prices to rise and stocks to plummet. After Grant realized what had happened, the federal government sold $4 million in gold. On September 20, 1869, Gould and Fisk started hoarding gold, driving the price higher. On September 24 the premium on a gold Double Eagle (representing 0.9675 troy ounces (30.09 g) of gold bullion at $20) was 30 percent higher than when Grant took office. But when the government gold hit the market, the premium plummeted within minutes. Investors scrambled to sell their holdings, and many of them, including Corbin, were ruined. Fisk and Gould escaped significant financial harm.

 

Subsequent Congressional investigation was chaired by James A. Garfield. The investigation was alleged on the one hand to have been limited because Virginia Corbin and First Lady Julia Grant were not permitted to testify. Garfield's biographer, Alan Peskin, however, maintains the investigation was quite thorough. Butterfield resigned from the U.S. Treasury. Henry Adams, who believed that President Ulysses S. Grant had tolerated, encouraged, and perhaps even participated in corruption and swindles, attacked Grant in an 1870 article entitled The New York Gold Conspiracy.

 

Although Grant was not directly involved in the scandal, his personal association with Gould and Fisk gave clout to their attempt to manipulate the gold market. Also, Grant's order to release gold in response to gold's rising price was itself a manipulation of the market. Grant had personally declined to listen to Gould's ambitious plan to corner the gold market, since the scheme was not announced publicly, but he could not be trusted. Gould had promoted the plan to Grant as a means to help farmers sell a bountiful 1869 wheat crop to Europe.  

 

A highly fictionalized account of Fisk's life, culminating in a dramatic presentation of the gold corner, was shown in the 1937 film The Toast of New York.

 

h/t Nolsgrad

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markmotive's picture

Umm...if you want to identify the end of the gold bubble, you only need to look at one thing...

http://seekingalpha.com/article/289717-identifying-the-end-of-the-gold-bull

caerus's picture

i'm not looking for the end of anything...i am a student of market history, and i enjoy this corner immensely...as i enjoy thales' corner...and vanderbilt's...

Ahmeexnal's picture

France is about to demand payment from Libya for the "liberating costs". They are going to rape the Libyan people just like they raped Haiti:

http://www.timesonline.co.uk/tol/comment/columnists/ben_macintyre/articl...

http://www.guardian.co.uk/commentisfree/cifamerica/2010/aug/16/haiti-france

Sarkozy wants to take Gadaffi's gold. Then stage a faux sale while everyone knows who the buyer will be.

Tank prices and buy at firesale prices at the same price is what NATO had in mind.

The problem is, the vaults were found empty.

Snidley Whipsnae's picture

If Lybian gold is put on the market the Chinese soverign wealth fund will buy it instantly... Just as they tried to buy the 210 tons of IMF gold that was sold off a year or so ago to India.

Whatever amount of physical is brought to market now will be purchased instantly with Ts or FRNs that the East has accumulated in abundance.

French Frog's picture

Am I seeing this properly?

A drop from $133.5/oz at 02.35pm to $34/oz at 02.36pm (a 75% drop in a minute when the US govt 'dumped' its gold holding)

max2205's picture

Crash? Open at 150 close 133 ?

30 or 40 trades. Talk about a thin market. Talk a out a pants full of balls risk on/off market those days were.

Lol. No HFT back then. Nice chaulk

MarketTruth's picture

Remember: Eric Sprott tried to buy TONS of gold from the IMF for his gold fund and the IMF outright REFUSED to sell it to him. There are too many players in the market looking to buy bulk physical (not paper) when physical is available.

French Frog's picture

I don't think that you are looking properly; from 2.36pm all the way to the close it quite clearly trades between $33 AND $34 (why would they not write the '1' before 33/34 on all those quotes when they have done so for the rest of the day)?

snowball777's picture

To save time when re-re-re-re-re-writing it as the price dived.

You'll note that they only do the short-hand when the quotes are within minutes, but they take the time to write it out otherwise.

10 - 11:30a +8% (150 -> 162)

11:30a -> 4p -17% (162 -> 134)

 

Clay Hill's picture

Edit:

Oops, back to chart school for me.

DeathCabfoKulaks's picture

I am not sure that they are using shorthand and dropping the handle.

Note in the morning that it goes from 150 to 50.

 

So is the actual crash from 160 go 130's?

MoneyWise's picture

"If Lybian gold is put on the market the Chinese soverign wealth fund will buy it instantly... Just as they tried to buy the 210 tons of IMF gold that was sold off a year or so ago to India."

(India Bought it at about $1070)

At what price? $2000/oz are you kidding? Do you think they are

idiots?

Check this out: "Gold mining in the People's Republic of China has recently made that country the world's largest gold producer. For the year 2007, gold output rose 12% from 2006 to 276 tonnes (or 9.7 million ounces) to become the world's largest for the first time -- overtaking South Africa, which produced 272 tonnes."

They are largest producer of Gold and they are Communists, basically

they can nationalize industry in the split second

If they need to, (but I'm sure they have a deal with Gold industry

to capture Gold at production + reasonable profit %)

and have all Gold

at production costs, Russia have lot's of Gold as well (They noway

paying Market price),

Only day

traders and speculators buying this at huge premium.

Manthong's picture

Regardess of what they can get out of the ground, if you were a Chi-Com leader, and held 3,000 billion FRN dollars of US debt ($3T), wouldn't you be chomping at the bit to dump a lousy 135 of those billions for Moomars's Au?

tmosley's picture

Not a reader, huh?

Might I suggest you read the sticky?  Price in dollars doesn't matter to an entity trying to DESTROY the dollar by buying gold.

snowball777's picture

No, they are not dumb...unless you think protecting (if not speculatively inflating) the price of an asset that they can nationalize at will is dumb.

Léonard's picture

Ahmeexnal

France is about to demand payment from Libya for the "liberating costs".

Excuse me sir but you have to ajust your vocabulary. It's Sarkozy who demand payment, not France.

Sarkozy does not represent France. The French were never asked if they agreed with this war that they pay with heavy taxes and none of them will profit of the libyan gold. To tell the truth, if the Anglo-american cartel was not backing the dwarf, the French people would have kicked him out of the office a long time ago.

sun tzu's picture

What's stopping them from kicking him out? Are they afraid of being invaded?

destiny's picture

I second this thought ! the French since the Lisbon and the Maastricht Treaty CAN'T say a damn thing about anything anymore...until we get down in the streets, but that won't happen before people get hungry ! and angry

AnAnonymous's picture

Excuse me sir but you have to ajust your vocabulary. It's Sarkozy who demand payment, not France.

Sarkozy does not represent France. The French were never asked if they agreed with this war that they pay with heavy taxes and none of them will profit of the libyan gold.
//////////////////////////////////////////////////////////////

Grossly stupid claims to make.

Sarkozy does represent the French. The French operate under the same political philosophy as US citizens.

Sarkozy is not an autocratic leader. He is empowered by the french popular will who have consented to deleguate their power in mattering questions to him.

Sarkozy as the french president has declared and waged war in Libya on the behalf of the French people. Sarkozy is just a civil servant working for the French people, doing what the French want and desire. The French people's responsibility is committed in the Libyan war.

So states the US political philosophy.

LasVegasDave's picture

Ahmeexnal is an agent of Sarkozy, who in turn is an agent of the international zionist consipracy that sent the jewish workers home on 9/11 before ramming two empty planes intothe towers while they stole the gold from ft. knox and replaced it with tungsten.

really, meexy, take the tin foil off your chimney and get out once in a while 

 

AdahPrice's picture

Sounds like the Romans, who used to force vanquished peoples to pay the cost of the Roman armies which invaded and vanquished them.  That was usually part of the "treaty".  For instance, it was part of a treaty Rome imposed on Carthage, which was right next door to Libya.

disabledvet's picture

Tank prices? Tank prices?! Let's take a closer look and start bidding:
http://www.youtube.com/watch?v=W7VFOJvAbkI&feature=player_detailpage
now who could have taken all that gold from the vaults?
Let's go find it! FOR LIBYA!

kito's picture

thats the sign of a bubble in blue pill world.

LowProfile's picture

LULZ.  Clearly neither of you read the article.

caerus's picture

i posted a link under the china gold article 3 hours ago...thanks for playing

DoChenRollingBearing's picture

@ kito

That would be my guess as well.  Things are very different than 1980 or 1869.

Besides, who sees high real interest rates coming?  Not for a long time.

You don't have to stay at the All Inn either.  Holding 10% in gold is better than 98% of Americans...  Holding 20% might make you RICH.

The end of the price rise of gold is far far away.  Get some while you can!

CompassionateFascist's picture

When the dollar is no more and we go to Civil War II, gold will be "worth" whatever you can barter it for. Might be a lot. Might be almost nothing. One thing for sure, lead's going to be worth a whole hell of a lot more. W/o it, you will be dead.  

sun tzu's picture

What makes you think the end of the USD will result in Civil War II or a Mad Max scenario? 

lolmao500's picture

Because that'S what happens when people are ruined and believe they are still entitled to everything they were promised to... medicare, medicaid, social security, pensions... all of that will be GONE.

Entitled people who got cheated are mad dogs.

Léonard's picture

The world runned during milleniums before the USA and will continue to do so after the US empire collapse.

MachoMan's picture

I've got some reservations about your use of the plural form, but I'll add a question...  How many world killing technologies had to be maintained at the time of the last destruction of the world's reserve currency?

Long-John-Silver's picture

"Entitled people" have lived their lives sheltered and nestled without a care in the world. They are sheep, and will be consumed when they panic and run into the streets and start bleating loudly. They have no guns, bullets, or a backup supply. They will be shorn and sent to the butchers.

dwdollar's picture

I envision two conflicts back to back.

The first will be the crazed 'entitled sheep' who take to the streets.and demand their bread and circuses. They will topple local governments (especially big cities) and the clueless politicians who run them. Eventually they will run out of easy and defenseless institutions to loot. The 'movement' will burn itself out as resources become increasingly scarce and they die off.

The second will be between the hardened federal government (now a martial law dictatorship) and the independent people who survive. These independent people are the those who still have resources and the ability to generate resources. The federal government will not tolerate anyone who doesn't willing surrender their resources for the 'rebuilding effort' which mainly is a war effort attacking independent people in order to preserve the failing federal power structure.

Manthong's picture

Oh good. For a moment there I thought we were in trouble.

http://www.youtube.com/watch?v=K0UzG-Gc7II

 

DoChenRollingBearing's picture

@ Compassionate,

I have the Pb thing covered too.

X.inf.capt's picture

and I pray it doesnt come to that, for these are fellow americans, i just hope they wake up...

DoChenRollingBearing's picture

Having gold and supplies will not be enough to make America a nice place if it comes to that.

But, not much is being talked about by our .gov that inspires any optimism or confidence.

Green for you X.inf.

X.inf.capt's picture

sad, but true, I dont think this story is going to end with "And we lived happily ever after" 

 

p.s. green back at you.

DumFarmer's picture

I agree, just remember you can't eat Au, Ag, or Pb on brass....(I've got mine) if you can swing it, it doesn't take a huge farm to feed yourself. If we don't go Mad Max, fresh food is yummy. Iif you can't do that, develope a relationship with someone who has excess growing capacity. I want as many smart, prepared people around as we can. My dream would be to have some theif banker who horded a truckload of gold playing the game show up and aquire said gold for the scraps of my excess production.

An old farmer once told me: "In the end, mother nature has a way of exacting her own revenge." I've found no other insight to ring so true.

Hedge from all angles, my brothers.

Real Estate Geek's picture

. . . it doesn't take a huge farm to feed yourself

 

Indeed.  I recommend "Square Foot Gardening" by Mel Bartholomew.

DCFusor's picture

Yeah, that's the book that got me started, lo, several decades ago when all I had was a backyard in suburbia.  Highly recommended.

My garden gets ruined regularly by weather "events", and sometimes varmints when we don't watch well enough (boxes and milk jugs over plants when we get a warning).  That's why you get extra seeds, make provision for watering (I haul from the creek), and plant extra seedlings in the starter/greenhouse to recover from that kind of thing.  Farming isn't easy, but it is possible.  You just have to accept that it's not automatic, and a re-do is required now and again.

One of the benefits of a rural lifestyle is that for example - I have next year's food, or most of it laid up as excess from the hobby farm.  I have next year's heat already stocked in the form of a mountain of firewood.  I don't depend on anything external for those.  Wheras when I was a city boy, I had none of that, and didn't get the heat bill (or the electric for the AC) until I'd already "spent" the resource, and was dependent totally on a possibly shaky income to keep playing the game.  Everything was completely dependent on the actions of other humans who didn't care if I lived or died, and society as a whole had to "work" for the electricity and gas to be available.

Now, all I need is the sun for the electricity.  And this isn't because I thought the sky was falling -- it's just a better lifestyle that feels better every day, whatever the rest of the dumb humans are up to.  I found city life to involve dealing with too many of the turds of humanity, here my neighbors are more or less at the other extreme.

Friends helping friends vs dog eat dog -- no contest, in my mind.  I'll never go back.

Hansel's picture

The drought and hailstorm this year destroyed my garden.  What the hailstorm didn't kill in one day, the 2 months without any rain took care of.  Farming isn't easy.

Are you kidding's picture

That's the problem...many...most?...are NOT "fellow Americans" and I'd prefer them gone.

Michael's picture

Last night I heard a CNBC World host asking a precious metals analyst;

Q: When do you know gold is in a bubble?

A: When you hear every CNBC guest is now recommending people buy gold.

Yeah, like that'll happen.

Michael's picture

You've got a situation in Greece where the entire history of their civilization is being taken over by bank robbers.

X.inf.capt's picture

well, at least the greeks have Luke, the riot dog. 

snowball777's picture

We in the US must immediately address this riot dog gap.

Michael's picture

The way our planet came into being is not our fault.

You are not to blame.

X.inf.capt's picture

very true, mike. but that gives me very little comfort thinking about the PAIN, SUFFERING, and AUSTERITY ( i.e. to pay back a debt I didnt agree to incur), that the aveage american is dealing with, or will, very soon. It breaks my heart....and they will watch it collapse, and well be luckly to survive it. Its to the point that how one prepares now will determine how bad you suffer. But all will suffer. What did the average american do to deserve this? Theyre not sheeples, they are americans, who didnt deserve this....