Emerging market central banks buy gold on discount is it heading higher?
Posted on 31 October 2011 with 3 comments from readers
Gold has been on sale recently since topping out at $1,913 in September, and Bloomberg reports that Bolivia, Kazakhstan, Thailand and Tajikistan have spent a total of $1.5 billion buying 27 tons of the yellow metal while Mexico sold 100 kilos.
This sum might sound comparatively small in an age of eurozone bailouts but it is significant enough for these states. Thailand’s gold reserves grew 11 per cent after this purchase, Bolivia’s by five per cent, Tajikistan’s by 26 per cent.
Bargain prices
Buying gold on the dips makes eminent sense for central banks as well as individuals. So is the price of gold going higher from here?
The eurozone bailout package may be short on detail but it is clearly a massive money creation exercise, however they choose to hide it. Europe is going down the US route of bailouts and money printing and the impact on a money with fixed supply like gold is therefore obvious, whatever the short-term fluctuations.
But in the short-term there may well be a down squeeze on prices if stock markets have topped out as ArabianMoney thinks (click here) with all the good news, such as it is, now in the prices.
Silver should follow the same pattern but with its usual exaggeration to the downside and upside. The price of silver jumped pretty dramatically last week as the more volatile precious metal responded to the inflationary implications of the eurozone deal.
Huge upside
We can expect much more of the same, particularly if a stock market retrenchment is swift in coming so that we get past the inevitable pull back.
The continued interest of emerging market central banks in gold is an important reminder that this is no ordinary commodity but a precious metal that is an intrinsic store of value with no third party risk. That is why central banks accummulate it to preserve the value of their reserves from currency fluctuations.
Individuals should be doing the same themselves to protect their savings from the coming ravages of inflation and devaluation.
3 Comments posted by readers:
draghi to lower ECB rates.
Maastricht treaty already ignored by PIIGS (GIIPS) on debt/GDP ratio years ago…..whats to keep them from ostentasiously printing euro?….germany will acquiesce when faced with EU brake-up.
Draghi, isn’t he another ex GS man? Should be fairly easy to predict; we have one here in Canada as head of the Bank. Reminiscent of the Pope placing the Cardinals;
one per region.
MF went down on the wrong side of the EU Sovereign debt issue; maybe could have been saved if there were a few more euros; with 21 more of these primary traders not being closely watched either it would probably help if Draghi were to print a bit of a cushion both for the EU people and the other players.
oh, he’ll be forced to print, alright, in an inflation race with the other fiat-currency-horses in the glue factory……the germans will concede to the mathmatics going down this can-kicking 40-year-old debt bubble created by socialist politicians buying votes with entitlements.
MF was on the wrong side because Corzine IS a socialist….let your politics cloud your investing n u r screwed.
Draghi was a GS man:
http://historysquared.com/2011/10/31/inside-the-head-of-mario-draghi/