A History Lesson – Gold & Friday

Black Friday, that is. Not today, but over 140 years ago there was a Black Friday, possibly the first, due to gold. Though instigated by two speculators, James Fisk and Jay Gould, President Ulysses S. Grant’s retaliation made the problem even worse.

During the Civil War, the US Government issued paper money that was not based on a gold standard. After the war, people generally thought the government would buy back the paper with gold.

At that time, federal holdings of gold were $95,000,000 with only $15,000,000 circulating around the country.  As financiers and speculators, Mr. Fisk and Mr. Gould wanted to buy as much of the circulating gold as possible then watch the values rise.

Their plan would work only if President Grant kept the government gold. However, after the war President Grant did begin to buy back the paper money with gold.

With some arm twisting, figuratively speaking, the financiers used President Grant’s brother-in-law, Abel Rathbone Corbin, another financier, to gain access to the President at social functions. At every opportunity they presented their opinion that the government should keep its gold using Corbin as another voice in their argument.

President Grant continued to socialize with Mr. Fisk and Mr. Gould but remained undecided about the government’s gold position. To further their ends, the financiers convinced Corbin to influence President Grant in appointing General Daniel Butterfield as Assistant Treasurer. The Assistant Treasurer would be in charge of any sales of gold on Wall Street. After his appointment, Butterfield would keep Corbin and the other financiers informed prior to any government gold sales.

Many historians remember President Grant as gullible and lacking in leadership throughout his presidency. Gullible, yes, but in this case, the financiers perhaps approached President Grant a few too many times espousing their government gold ideas. In particular, President Grant became suspicious of his brother-in-law’s interest in gold.

This came to a head when President Grant’s sister, Abel Corbin’s wife, wrote a letter to Mrs. Grant about Corbin’s gold interests. President Grant realized the financiers including Corbin were manipulating him regarding gold.

Very quickly, President Grant sent an angry missive to his brother-in-law telling him to cease his gold efforts. Soon thereafter Grant ordered $4,000,000 of the government’s gold holdings to be sold on Wall Street.

In the meantime, Fisk and Gould had been buying gold and had been watching the price climb. On Friday, September 24, 1869, the price of gold rose to $162.50. People borrowed money to buy gold as the price crept upwards. But, when President Grant’s $4,000,000 in gold hit the market on that day, the prices fell sharply.

Take a look at this picture from the Library of Congress showing the black board of the Gold Exchange on Friday, September 24, 1869.

From the close on Thursday at 143 and 1/8 to a high of 162 and 1/2 on Friday, the price sharply dropped to what appears to be 33 and 3/8 on the black board.

People lost significant amounts of money; some investors lost everything.

As for Corbin, Gould and Fisk, Corbin lost big as did Fisk, however Gould sold much of his gold before the prices dropped.

In the subsequent Congressional hearings, Butterfield lost his position as Assistant Treasurer, but the people would not allow Virginia Corbin or Julia Grant to be questioned.

The manipulation by speculators and by President Grant caused Wall Street brokerage houses to fail, stocks to plummet, businesses to break down, and people’s lives and livelihoods to be devastated.

Perhaps this was the first occurrence of gold manipulation by speculators and by the government, but it raises a warning flag.

Today, many gold pundits say that governments, not just ours, are manipulating the gold market. Others say that the gold market is too big to be manipulated.

This is not an intentionally Negative Nellie article, instead it provides a lesson from history. Perhaps one should be open-minded in thinking about what governments and speculators can do to businesses and the marketplace.