Thursday, April 26, 2012

Sneeky Gold

Gold is money and as much as central banks would like to keep a lid on their competition (gold) they seem to be losing the battle. Furthermore, they aren't even doing it surreptitiously as now gold's resurgence is open for all to see.

Central Banks are again buying gold and using it as real money. Here are the latest figures:

Central-bank reserve managers reported bullion reserves by 439.7 tons last year - the biggest annual increase in almost five decades.

China - difficult to assess, but averaging around 75 tons per year
Mexico - 16.8 tons in  March; 98.8 tons purchased in 2011.
Turkey - 11.5 tons
Russia -  15.6 tons last month. Another 1 ton in the first three weeks of April.
Kazakhstan - 4.3 tons last month.

Note who is buying here. Central banks of countries that are in direct competition with the USD. Countries like China, India, Brazil and Russia.

Then there is Iran. The draconian measures undertaken by the US in closing down the SWIFT inter-bank transfer system to Iran, has upped the anti for these global currency wars and the use of gold. To survive, Iran needs to use another method of monetary settlement in order to transfer goods and services abroad. Naturally they will be using gold. Already agreements to do so have been setup with India and China to use gold as the medium of exchange for oil and other goods.

It is likely that the large central banks of Europe and the USA will not sit idly by and let gold take over as the de-facto standard for international monetary settlements. There is likely to be continued manipulation of gold price levels going forward. A fast rising gold price would be an indicator that these central banks are losing control over price, albeit the paper price only.

These are interesting times. We see a de-facto gold standard emerging and the fight by the US to keep hold of the privileged position it has held for 70 years; the luxury of controlling the global reserve currency.

As an aside, if gold is becoming the means of payment for international settlements, then what does this say about Ben Bernanke's recent statement that central banks only hold gold for 'traditional purposes' and it is not money?

By the way, gold refined to 999.5 purity and certified within the LBMA system, is classed as money internationally. There's not central bank that doesn't know this.

Gold in New Zealand dollars: $2016.81 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $37.68 per oz
Previous all-time high: $59.19
per oz (30 Apr, 2011)
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