Now, to bolster the tottering Economy, the US, where Deficit Financing has reached astronomical proportions is going all out on a Gold-buying spree.
It is also using this as a tool to wreck the developing countries who are posing a challenge to them.
In the process poor nations will have no option but to lean on the US for support, thus increasing the US’s Sphere of Influence.
As a consequence the price of Gold is likely to soar in 202-13.
Under the Bretton Woods agreement, the US dollar became the reserve currency of the world. For getting European support, essential for the implementation of Bretton Woods system, the US flooded Europe with dollars.
Various mechanisms like the Marshall Plan, the IBRD, were used. This flood of US dollars, anchored European currencies – and by proxy, became equally useful. For the last 60 years now, European nations there was no need to maintain any foreign exchange reserves.
Unlike the rest of the world.
Even major economies like Japan, China, India, Brazil, Russia.
Are things changing now?
In common with most developed countries the U.K. has no reserves worth speaking of. In truth, what is interesting is how low the reserves held by all the developed nations now are. Switzerland is the only European country with significant reserves, with $340 billion squirreled away, whilst Germany has $257 billion, and France has $172 billion. The U.S. only has $148.5 billion, although when you can print the world’s reserve currency maybe that doesn’t matter so much. Overall, however, it is only the emerging nations that have built up significant cash piles.
Central banks in the emerging markets increasing their holdings of gold has been a big part of the bull market in the metal. At the end of last year, official net purchases of gold started to rise dramatically. In the third quarter of 2011, central banks added 148.8 tonnes to their gold stocks, more than double the entire amount of government buying in 2010, according to the World Gold Council. Interestingly, the Greek central bank has been slowly adding to its holdings of gold, which would be sort of handy, should they happen to decide to re-introduce the drachmas one day.
But the next phase will be developed world central banks moving back into precious metal; the U.K., Germany, France, Switzerland and potentially the U.S. as well.
The U.K. has given the first hints that policy makers are at least thinking about it. Actual buying maybe some way off. And if they start, it will be done discreetly, otherwise the price will shoot up.
But when it starts to happen seriously, it will provide the bull market in gold with a whole new impetus. (via Why Gold’s Bull Run Could Continue – SmartMoney.com).
“…Recent coordinated actions by six central banks and separate actions by the ECB suggest that non-gold related measures to ease access to USD swaps will be successful, reducing downside pressure on the gold price.”
Drawing on this they think gold prices will depend on the persistence of four pillars of the original bull market namely:
1. Decline in producer hedging. Last year gold mining companies growing cautious on gold volatility began hedging to lock-in prices for their future output. But Morgan Stanley analysts say a decline in hedging or a potential de-hedging could be a “positive demand factor”.
2. The decline of developed market central bank sales and rise of emerging market central bank purchases
3. The inability of gold mining companies to increase gold supplies materially
4. Long-term growth in physical investment demand.
Morgan Stanley projects gold prices will rise to $1,845 per ounce in 2012 and $2,175 in 2013. For now they see that absence of central bank sales, limitations in size of the scrap gold pool, the rising demand from ETFs and coin sales is likely to see the bull market last into 2012 – 2013.
- Central Banks Stockpiling Gold & Governments Hoarding Oil (goldkingint.wordpress.com)