Central Banks: You hold paper…Let us have the Gold….
I recently read a Wall Street Journal article about central banks shifting out Euros into safer assets like gold. For those paying attention, it has long been known that central banks are no longer net sellers of gold, but net buyers!
Yes, they are buying gold instead of paper. Our central bank, the Federal Reserve, would love for Americans to be dumb enough to keep holding dollars and buying treasury paper instead of gold and silver. I hope no one reading this article is in this group of Americans. If you are, then you should start looking forward to living in poverty in the near future. When the dollar crashes, your paper dollars will be more valuable as a source of fuel to heat your home than buying anything with them.
[update]
I just saw this article, Castles Made Of Sand posted on Adam’s blog Gold versus Paper, that was an interesting read. If you really like to see some interesting gold and other market charts, you should definitely see Adam’s blog. You can count on Adam to display some good charts and interesting commentary almost everyday.
Here is an excerpt from the article:
Gold’s surge to a record sparked speculation that central banks may be stepping up purchases of the precious metal….
The metal has surged over worries about Europe’s debt woes and the slumping value of the euro. Investors in metals and currency markets have been on alert for any sign that the world’s central banks, and China in particular, are shifting reserves out of the euro and into gold.
Though central banks typically are coy about investment decisions, there have been signs lately that they might be shifting out of euros and into gold.
Russia’s central bank, one of the world’s largest holders of foreign-currency reserves, trimmed its currency reserves by $6.6 billion in May, according to data on the bank’s Web site, but increased its gold reserves by $1.8 billion.
Last week, an Iranian news agency said the country had begun switching €45 billion of its foreign-currency reserves into gold and dollars, a report that was unconfirmed.
“You won’t see major players be blatant about increasing their gold exposure and reducing their euro exposure, but it is a trend we’ve been witnessing in the past few months,” said Kathy Lien, director of currency research at GFT Forex in New York. “For the most part, whether they openly admit it or not, central banks are increasingly worried about their exposure to euros.”
Central banks would be joining a buying binge by individual investors who have piled into coins and exchange-traded funds.
Central banks were net buyers of gold in 2009, according to the World Gold Council. India alone purchased 200 tons of gold from the International Monetary Fund. But appetite appeared to wane as gold traded at record levels……
“This is a beginning, I am afraid,” said Andy Smith, a senior metals strategist at Bache Commodities Group in London. “Gold is reflecting so many things that could possibly go wrong.” Src-Wall Street Journal
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