Wednesday, November 9, 2011

Are Central Banks the Ultimate Gold Bugs?

Well, what have we here then? The Germans being asked to put up their gold as collateral for more EU bailout funds. Guess what happened to the middle finger of the German hand as it was raised in defiance?

"German gold reserves must remain untouchable," Roesler, who is head of the Free Democrats (FDP), a junior partner in Chancellor Angela Merkel's coalition, told ARD television

It's OK to try and hobble together an EFSF fund of $450 billion and expect other countries to contribute to it and leverage it up to $1.2 trillion. It's OK to try and convince the market that investing your debt in debt makes debt more valuable. But, as an investor, it is NOT OK to ask the Germans to put up a real asset as backing for the EFSF. No sirree!

Anyway, did not Ben Bernanke sit in his congressional committee chair and look thoughfully to the side as he said (without even a smirk), the gold is not money. Hmm, it appears the Chinese don't believe him, since the smackdown in gold prices in the past three months, they have been buying record amounts of the yellow shiny stuff. The Financial Times reports:

"The buying spree follows a sharp drop in the price of the precious metal. After hitting a nominal all-time high of $1,920.30 a troy ounce in September, gold fell to a three-month low of $1,534 an ounce later in the month. Chinese investors snapped up the metal as prices fell. Data from the Hong Kong government showed that China imported a record 56.9 tonnes in September, a sixfold increase from 2010."

Thailand, Indonesia, South Korea and many others have also joined the gold buyers club.

As already stated this week, the system backed by fiat money is coming to a crashing halt. When confidence in a big fat nothing is seen for what it is, confidence in nothing, then gold will come rapidly in the line of sight for Mum and Dad investors. They will stampede out of paper so fast, the gold and silver price could go to the moon.

Gold in New Zealand dollars: $2234.69 per oz
Previous all time high: $2284.16 per oz (19 Aug, 2011)

Silver in New Zealand dollars: $43.76 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)

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