"There have been half a dozen central banks that have started dumping their gold holdings in recent years, including producer
nations like Canada and South Africa. So far, however, none of
the heavyweight holders of gold have joined in, and it is difficult
to see how they could without destroying the market and therefore the value of their own reserves.
The theory is that now there is a global financial system where
most of the major economies utilise floating exchange rates, and
where there is a general and - because of the disciplines
imposed by the global financial markets - structural commitment
to preserving low levels of inflation, gold's usefulness as a hedge
against inflation has passed its use-by date. There are far
better-performing assets to be held as reserves, which was the
RBA's motivation in selling.
That does, of course, presuppose that global inflation is permanently under control, or that there are safe havens to counter any outbreaks within individual economies.
There is an interesting counter-argument that the unification of
regional economies and the formal or informal linking of currencies - the European Union and the European currency unit, for instance, assuming they eventuate - will shrink the diversity of potential safe havens to the US dollar and the ECU and therefore drag gold back into the limelight as the obvious alternative. ("Reserve gold sale strikes sensitive local nerve," The Age, 05 July 1997)
Note: The above is a portion of the article in response to Australia's sale of gold last year. Among the threats continually issued by analysts referring to potential central bank gold sales, despite the fact that central bank officials deny that sales are planned, we do not hear similar threats concerning equities. The same tools are used to sell things like the NAFTA and Fast Track trade authority; "Your jobs are at risk if we do not push the legislation through NOW, and there is really no time to debate the issue, just trust us." How about -- "Regardless of the rise in stocks, there are lots of equity holders out there, and those equities could be sold at any moment! They have been known to sell off in the past without warning, so you ought to avoid the group altogether." Of course, it doesn't work like that does it? It is safe to bet with the winner. So long as the public, the press and institutions reflect the same opinion, true or not, the opinion will prevail and manifest itself, for a while anyway.
Honestly, I am not completely jaded on the markets or solely in support of gold. It just bothers me that when the financial community resorts to threats, its position is untenable. |
