On September 24, 1869, the price of gold on the New York Gold Exchange hit $162 an ounce. Shortly after, it plunged to $133 an ounce, ruining scores of investors in the process. What was the Black Friday New York Gold Conspiracy?
Jay Gould & James Fisk: The Plot to Corner the Gold Market?
During the Civil War, the U.S. government began issuing “greenbacks” in order to raise money. Greenbacks were a fiat currency (similar to that used today) and thus, were not backed by gold or anything else. After the war ended, the government began to withdraw the greenbacks from circulation. This was accomplished by buying greenbacks with gold. This allowed the price of gold, which had reached $300 an ounce, to return to a more normal level of $130 an ounce by early 1869.
Around that time, a group of investors, led by Jay Gould and James Fisk, saw an opportunity to generate enormous profits. They wanted to, in effect, “corner the gold market.” But they feared the U.S. government’s tendency to stabilize gold prices. They needed to find a way to temporarily take the government out of the game. And in order to do that, they needed to seize control of its monetary policy.
Gould and Fisk recruited Abel Corbin, President Ulysses S. Grant’s brother-in-law, to their cause. Together, the three men badgered Grant to stop selling government gold, arguing that it would make farmers more competitive in overseas markets and thus, raise farm prices.
Black Friday!
By September 1869, Gould and Fisk were convinced that their plan had worked. They began buying large amounts of gold with very little money, thanks to small margin requirements. As they accumulated a large position, they were able to manipulate the market price higher and higher, making plans to unload it before the inevitable fall. Prices rose and stocks fell. President Grant immediately grew suspicious of his brother-in-law and told his wife to add a note in a letter written to her sister:
On September 23, gold reached $142 an ounce. Gould, who’d learned that Grant was on to the scheme, began secretly unloading his position. Fisk, completely unaware of what was about to happen, did not. The next day, Black Friday, the price of gold ran all the way up to $162 an ounce (the actual blackboard is shown above). Then word reached the New York Gold Exchange that the Treasury was selling $4 million of gold. Abruptly, prices collapsed, sending gold reeling back to the mid $130s.
Many investors, who’d bought gold on margin, were ruined. Gould “was rumored to have cleared $10 or $11 million” although this remains in question. Fisk is believed to have escaped harm by repudiating his trades.
Guerrilla Explorer’s Analysis
Black Friday caused a brief financial panic. But for the most part, no one paid a price for the scandal. Gould and Fisk escaped punishment, thanks to sympathetic Tammany Hall judges. President Grant was accused of being involved in the Black Friday scheme. However, it didn’t stop him from being reelected in 1872.
Over the years, others have tried to corner various types of financial markets. But Gould’s and Fisk’s Black Friday attempt might just be the most audacious of them all. By enlisting the gigantic hand of government to aid their cause, they took corporatism to a whole new level. On a relative basis, one could make the claim that Gould and Fisk caused the biggest one-day crash of gold in U.S. history on Black Friday, maybe even of all time, and got away with it.