The 1973 Gold Bottom That Proves Central Bank Buying Doesn't Drive Prices And Why Austrian Logic Explains Gold's Real Strength Today

Rafi Farber of The Endgame Investor dismantles the dominant narrative around central bank gold flows using ironclad 1973-1974 data. The lesson for 2026 investors is clear: gold rises when individuals lose faith in central-bank credit, not because bureaucrats buy or sell metal.

In the endless commentary surrounding gold, one narrative dominates: central banks are the decisive force. Their purchases are said to underpin every rally; their sales are blamed for every correction. Rafi Farber of The Endgame Investor has spent years challenging this view with empirical precision and Austrian economic reasoning. His latest deep dive into the 1973 gold bottom delivers what he calls “incontrovertible empirical proof” that central bank gold buying and selling have very little to do with gold’s price trends relative to the U.S. dollar. The implications are profound for anyone trying to understand gold in 2026 — especially after the sharp correction from earlier highs above $5,500. If central bank flows are not the primary driver, then what is? Farber’s answer, rooted in Austrian school logic, points to something far more fundamental: the subjective decisions of individuals assessing whether they can still trust the credit notes issued by central banks.

The 1973 Bottom and the 100% Rally That Followed

Gold topped near $126 in May 1973. It then declined for roughly six months, reaching a low of approximately $90.50 on November 15, 1973 (the New York Times reported levels as low as $86 during hectic trading that day). From that bottom, gold rallied roughly 100% to around $175–$180 within four months, with the bulk of the move occurring in January and February 1974. Two events occurred right around — and on — the day of that bottom. The first was a Federal Reserve gold revaluation in October 1973. The official dollar price of gold rose from $38 to $42.22 per ounce — an 11% increase. This boosted the dollar value of the Treasury’s gold stock by about $1.2 billion. According to a January 1974 Federal Reserve Bank of St. Louis Review article by Albert E. Burger titled “The Monetary Economics of Gold,” the Treasury had a choice: neutralize the effect on the monetary system or monetize the gain. It chose monetization. On October 25, the Treasury issued gold certificates to the Federal Reserve Banks. Treasury deposits at the Fed rose by $1.2 billion. Then, between October 24 and November 14 — the day before the gold bottom — the Treasury spent that $1.2 billion into the economy. Treasury deposits fell by $1.2 billion while deposits of the public, the monetary base, and bank reserves rose by the same amount. In Austrian terms, this was a classic injection of new credit into the system. It expanded the monetary base without a corresponding increase in real goods or services. Such expansions weaken the quality of credit relative to hard assets like gold. The second event occurred on November 14, 1973 — literally the day before the bottom. Seven major nations (the United States, West Germany, Britain, Italy, Belgium, the Netherlands, and Switzerland) terminated an accord that had barred monetary authorities from transacting in bullion on the free market. The decision, reported on the front page of the New York Times the next day, theoretically cleared the way for central banks to sell gold on the open market. Central banks still controlled roughly half the gold mined since the 17th century. The market interpreted this as a reduced monetary role for gold and a signal that official sales could begin. They did begin. Data from gold.org shows central banks were net sellers from 1974 through 1979–1980 — precisely during the greatest percentage gold bull market in modern history.

The Empirical Record: Central Bank Flows and Gold Prices Move in Opposite Directions

Farber presents the gold.org chart of official gold transactions since 1950. From 1950 to 1966, central banks bought gold aggressively while the world was still on a gold standard — the price was fixed, so their buying had no market effect. From 1966 to 1968 they sold to defend the London gold pool and the $35 statutory price. Then comes the critical period: 1974 onward. Massive official selling coincided with the explosive 1970s bull market. Central bank buying only resumed meaningfully around 2011 — just as the post-2011 bear market in gold began. The correlation is not merely weak; in the key episodes, it runs in the opposite direction of the popular narrative. Farber is careful not to claim central bank activity has zero effect. Short-term price wiggles can occur. But the long-term trends — the multi-year bull and bear markets — show almost no reliable relationship with official flows. The 1973–1974 episode is the cleanest demonstration: the largest central banks openly declared their intention to sell gold into the free market on the exact eve of the generational bottom, and the biggest bull market in percentage terms immediately followed.

Austrian School Logic: Why Central Bank Actions Don’t Drive the Trend

Farber’s explanation draws directly from Austrian economics — the tradition of Mises, Hayek, and Rothbard that emphasizes subjective value, human action, and the impossibility of reducing economic behavior to econometric equations. When an individual buys gold, especially during periods of monetary strain, he is not primarily “buying gold.” He is getting rid of depreciating currency. His decision is rooted in his personal value scale: he judges that gold will better preserve the purchasing power of the work he has already performed. In hyperinflationary extremes, the quantity of gold received matters less than escaping the failing credit instrument. A central bank operates on an entirely different plane. It buys or sells gold to manipulate liquidity according to Keynesian models of aggregate demand and econometric constants. Central bankers are not economic actors in the Austrian sense. They are not preserving their own purchasing power or that of any real constituency based on subjective valuation. They are attempting to manage the price of credit relative to gold using equations that cannot capture the complexity of human action. When a central bank sells gold, it drains liquidity in the short term but simultaneously reduces the gold backing of its own liabilities (the currency and credit it has issued). Over time, this weakens the quality of that credit and strengthens gold’s position. When a central bank buys gold, it must inject new credit into the banking system to pay for it, increasing the volume of credit relative to the existing stock of gold and ultimately pressuring gold’s relative value higher once the distortions work through the system. Either way — whether viewed through the lens of individual value scales or through the mechanical effect on credit backing — central bank gold transactions are not the primary driver of gold’s long-term price in fiat terms. The real driver is whether individuals, acting on their own subjective assessments, continue to trust the credit notes issued by central banks or begin to seek refuge in gold.

What This Means for Gold in 2026

The dominant 2026 narrative has centered on central bank buying as the floor under gold prices. Farber’s historical analysis suggests this focus is misplaced. Gold’s strength ultimately comes from the erosion of confidence in fiat credit — exactly the process Austrian economists have described for a century. The recent correction from earlier 2026 highs does not invalidate the bull case. It may even be consistent with it. Periods of monetary expansion and credit growth are frequently followed by corrections in gold as markets digest the new liquidity. The 1973 revaluation and subsequent spending into the economy produced exactly such a dynamic: an initial accounting gain, followed by monetary-base expansion, followed by a sharp but brief gold decline — and then a powerful rally once the implications for credit quality became clear.Investors who anchor their thesis primarily to the latest central bank purchase data may be watching the wrong variable. The more relevant signals are those that reveal whether individuals are losing faith in the sustainability of current credit expansion: persistent fiscal deficits, repeated monetary accommodation, rising debt-to-GDP ratios, and any signs that the price-sensitive private buyers of government debt are demanding higher compensation.

A Sponsor That Aligns With Sound Money Principles

This analysis is brought to you in partnership with Monetary Metals, sponsor of Rafi Farber’s The Endgame Investor channel. Monetary Metals allows investors to earn interest on allocated physical gold and silver — in gold and silver terms — without selling their metal. It is one of the few platforms that treats gold and silver as money rather than mere commodities. Use code ENDGAME10 at checkout for 10% off when opening an account. For those seeking deeper exploration of the intersection between faith, economics, and sound money, Farber also offers religious and economic lessons on his Patreon.

The Bottom Line

The 1973 gold bottom was not caused by central bank buying. It occurred at the precise moment major central banks declared they would sell gold on the free market — and the greatest percentage bull market in modern history immediately followed. That empirical fact, combined with Austrian reasoning about subjective value and the quality of credit, should shift how serious investors think about gold in 2026 and beyond. Gold does not rise primarily because central banks buy it. Gold rises when individuals, acting on their own value scales, decide they can no longer rely on the credit instruments issued by those same central banks. That distinction is not semantic. It is the difference between watching bureaucratic flows and understanding the deeper monetary forces at work. Rafi Farber’s The Endgame Investor continues to cut through prevailing narratives with historical data and clear Austrian logic. In an environment where official-sector buying is treated as the sole explanation for gold’s strength, his willingness to examine the record — even when it contradicts popular talking points — is exactly the kind of independent analysis resource investors need.

Final Disclaimer:

This article is for informational and educational purposes only. It does not constitute investment advice or a recommendation to buy, sell, or hold any security or commodity. Gold and precious metals investments involve substantial risk of loss. Past performance is not indicative of future results. Readers should conduct their own due diligence and consult qualified financial professionals before making any investment decisions. Market conditions can change rapidly.