Will Russia Win the "G"old War?
June 18, 2010 –
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How ironic that the institutions that
create and tout paper money don't want it.
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The incompetence of central banks is shocking but I suppose it's better late than never to change your tune.
After a decade of gold sales, central banks have stopped selling.
Statistics released today from the World Gold Council confirmed this,
showing that central banks sold no gold in the first quarter.
A few were buyers, notably Russia and Philippines.
Also Saudi Arabia "restated" its reserve position to 323 tons, up from 143 tons.
I'm not sure if people grasp how important this is on many levels.
1) It's a huge no-confidence vote in the economy. Since Nixon closed the gold window central banks have consistently SOLD gold, ostensibly indicating their confidence in the financial system. Yet 2009 was the biggest year of gold buying since 1964 back when we were ostensibly on a gold standard.
2) The buyers are not our friends. Russia in particular has been the most foresighted and it continues to snap up gold. Their unstated goal is to torpedo the dollar, and hence the US. They're playing a financial warfare game and we're clueless to it.
3) Buyers have natural resource power. Did you know that Saudi and Russia are the two biggest oil exporters in the world, and by an enormous margin? Together they export 14 billion barrels of oil, equal to the next 6 exporters combined.
Russia is also the largest natural gas exporter by far. Guess what?
Russia doesn't have to accept dollars for its gas.
If it suddenly demanded payment in gold, gold would instantly become currency and leap in value, probably to $4,000-$5,000.
It sounds far fetched but it is feasible - credit to the incomparable Jim Rickards for this idea, but Iran and Russia are the types of countries that would be in on such a scheme.
Forces are at work to replace the dollar as world reserve currency. This is why gold can hit $5,000. Central banks probably are clueless to a scheme like that envisioned above, but their actions are in a twisted way on the same page with Russia's intentions to make gold the new world currency.
By not selling central banks are indicating in crystal clear terms their low confidence in the dollar and paper money in general.
How ironic that the institutions that create and tout paper money don't want it.
Of course the Western banks are in a dilemma - they can't express interest in gold or even buy it because that would provoke a run on their own currency. But stopping their sales is equivalent to buying. It's a wonder that the market hasn't recognized this for what it is: incredibly bullish for gold. Gold is at new highs but it won't take much at all to drive it well, well higher.
Andrew
caps.fool.com
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