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Gold/Mining/Energy : Gold & Gold Stock Analysis
GLD 362.31-1.8%4:00 PM EST
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To: ecrire who wrote (25044)8/2/2011 2:53:59 PM
From: GST8 Recommendations  Read Replies (2) of 29622
 
Asian central banks recycle dollars instead of holding gold -- that was the grand bargain of the last 30 years. And they have trillions to recycle. Those days are coming to an end. If you do not grasp the significance of this shift then I do not know how to help you understand the way the world has changed and where we are headed. Instead of obediently buying treasuries to infinity, Asian central banks are doing what they were asked not to do: They are using their current account surpluses to buy gold.

Central banks drove gold down to $250 and ounce -- that was the point at which the argument to shun gold and hold dollars was at its peak. Once the foot of central bank selling was lifted, gold came back up -- and to the tune of a 600% increase so far. That was phase one of the gold bull.

Now we are entering phase two. In this phase, central banks rebalance their holdings. All the talk about 'there is no alternative to the dollar' is a combination of pure ignorance and pure spin. For central banks the use of gold as a reserve is the historical norm -- and continues to be to this day. China and India as well as other central banks are embarking on a rebalancing of their reserves to more closely resemble the reserves of their western trading partners -- i.e. to hold at least half of their reserves in gold. China now holds something like 2% of its reserves in gold. Do the math.

You can grasp the fundamentals and see things clearly or you can put on a blindfold and dodge cars on the day-trading freeway -- your choice.
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