"He was a spider
(who) spun huge webs, in corners and in the dark."
We pick up our story on Jay Gould in 1869. Since the end of the Civil War, agricultural prices had been falling as the railroad system was built out, thus enabling an increase in supply of farm products. At the same time, the federal government was withdrawing the currency, greenbacks, from circulation, which led to a fall in the price of gold from nearly $300 an ounce to $130 in early 1869. The greenback fluctuated in relation to gold, so the government could influence the price by selling or withholding the precious metal.
Now you have to picture that since U.S. exports were paid for in gold, the decline in the gold price made American farmers less competitive overseas since American grain was more expensive. Jay Gould thought that if he could concoct an argument that the government should refrain from selling its gold on the market (because if the gold price was allowed to rise, the farmer would then be able to sell more of his grain in Europe), it would raise already depressed farm prices. [Think of the situation in the gold market of the past few years, where every time central banks would sell off some of their reserves, the gold price would plummet. This is what Jay Gould was trying to prevent.]
In 1869 the federal government held gold reserves of $100 million at Fort Knox, compared with $15 million in circulation, and the Treasury would use this to stabilize the gold market. For Gould to corner the market, he would need control of government policy. Then, as Gould accumulated his position, he could raise the price paid by the market and unload before it fell. Gold was traded in New York at the "Gold Room" and back then it was the most heavily traded market. One could buy a large exposure to gold with very little money down, as the margin requirements were a pittance, so fortunes were won, and lost, constantly.
Now what Gould needed was access to President Grant. In May 1869 he met an aging speculator by the name of Abel Rathbone Corbin, who had recently married Grant's sister. Gould offered Corbin $1.3 million of gold at $133 on credit. And speaking of credit, Gould at the same time had acquired a controlling interest in Tenth National Bank, meaning he had unlimited access to the funds necessary to back his gold play.
In June, Gould met President Grant on Jim Fisk's steamership. Grant, himself, loved being around big-moneyed men and listened intently to Gould's description of the plight of the farmers and how the government could help by not intervening in the gold market. Then in July, Gould caught another break when another contact, General Daniel Butterfield, was named Assistant Treasurer. [Butterfield, by the way, was a Civil War congressional medal of honor winner, as well as the writer of the music for "taps."] So let's see; access to Grant
check. Yup, everything's in place.
In September, Gould was convinced that Grant wouldn't stand in the way of a bit of inflation in order to help the farmers so he began to accelerate his gold purchases. In fact, at one point, while Corbin met with Grant to convince him not to intervene in the gold market, Gould was in a back room listening to the conversation. At this meeting Corbin supposedly got the president to sign a specific order for the U.S. Treasury Secretary, George Boutwell, not to sell gold without direct orders from Grant.
Gold had been trading in a narrow range during the summer of 1869, basically around $135. Then in mid-September, as Gould was further accumulating his position, Corbin wrote President Grant to argue once again for the case for higher gold prices. Grant received the letter by private messenger on Sunday, September 19, while he was vacationing in Pennsylvania. Finally suspicious of his brother-in-law's motives, Grant noticed that his wife, Julia, was writing a letter to Mrs. Corbin (Grant's sister). The president told Julia to add the following to her note.
"Tell your husband that my husband is very much annoyed at your speculations. You must close them as quick as you can!"
On September 23, gold hit $142 and Gould, now aware of Grant's reply to Corbin, began unloading his position as secretly as possible, while at the same time his partner, Fisk, was buying. [More on this later.]
Then on September 24, "Black Friday," gold quickly ran to $150 (again, remember that everyone was using excessive margin so these were huge relative moves), but the market was beginning to gather that the Treasury was preparing to make a move. Stories of the rally had reached back to the president and he instructed Treasury Secretary Boutwell to sell. Right before word hit the Gold Room that Treasury was dumping $4 million of gold, the price peaked at $160
and then the bottom dropped out, as gold plunged to $135.
[There is a story that when the gold price hit $160, the bells at Wall Street's Trinity Church, which survived the attack of 9/11, tolled, and that by the time the bells fell silent gold had plunged to $138.]
Scores of brokers went out of business on Black Friday. One of them even shot himself, another victim of Jay Gould. Jim Fisk ended up repudiating his trades, the ones entered as gold was rising, because he claimed he hadn't written anything down on the transaction slips which he had placed through an intermediary, an act which otherwise would have made him liable for the margin debts. This move reminded some of an earlier time when Fisk, during the Erie Railroad debacle, ventured, "Nothing is lost, save honor." Gould, who remained friends with Fisk (thus making it pretty clear that the two were in on the scam), was rumored to have cleared $10 or $11 million and there was one account of this story which noted that when news of the gold corner became public, Gould was attacked by an angry mob, barely escaping with his life. Thereafter, he always traveled with a bodyguard.
[In reading all of the accounts from the below listed sources, there are some which opine that Gould may not have made a dime in his attempted gold "corner." Others say that Fisk lost a ton and that he was obviously miffed at Gould. All I can do is weigh the different tales and reach my own conclusions. Thus I opt for those detailed above.]
"Wall Street: A History," Charles Geisst
"Devil Take the Hindmost," Edward Chancellor
"A History of the American People," Paul Johnson
"Manias, Panics, and Crashes," Charles Kindleberger
"Money, Greed and Risk," Charles Morris
"The Presidents," edited by Henry Graff
"The Great Game," John Steele Gordon