Tuesday, August 25, 2009
Central Banks Hoard Gold
"European central banks party to the Central Bank Gold Agreement have signed a five-year deal that will cut the annual sales limit to 400 metric tons of gold and allow the International Monetary Fund to join as a signatory it it wishes. ... Analysts said the lower ceiling on gold sales was a belated recognition that central banks have become less willing to sell reserves, reflecting a change in thinking at central banks at a time when the dollar is in decline and inflation worries are widespread. ... The latest deal provides certainty to the market that none of the European central banks will flood the market to take advantage of high prices. The gold holdings of the 10 largest signatories total more than 11,000 tons, valued at $350 billion. ... However, the lower ceiling is an encouraging development for gold prices, as it suggests gold is regaining its former status as a monetary asset. 'Many central banks are reviewing their position on gold,' [Eugene Weinberg at Commerzbank] said. 'Gold has been over the last years probably the most stable currency'," my emphasis, Nina Koeppen and Matthew Walls at the WSJ, 10 August 2009, link: http://online.wsj.com/article/SB124963253160313925.html.
Less "willing to sell reserves"? Does that mean central bankers think gold is going up "in value"? "Flood the market"? Hahahahahaha, would the Mogambo Guru say. Nice cover story, I say. Sell gold to buy what? Dollar bonds? "Regaining its former stature"? What would Charles DeGaulle say to this? Gold is $956 as I write, 46.25X its 1933 $20.67 "price". Or is the dollar .00104 ounces of gold, down 97.9% from .04838 ounces in 1933? Got gold? get more? Even the central banks aren't selling. Suppose they sold 400 tonnes a year, how much is that? At 32,151 troy ounces per tonne, that's 12,860,400 ounces, or $12.3 billion a year. Not a lot. That all GSG got in its recent AIG bailout. "Most stable currency" indeed. So it has been for 5,000 years.