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Gold/Mining/Energy : Naxos Resources (NAXOF)
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To: Tom Frederick who wrote (12069)4/20/1998 2:56:00 PM
From: Henry Volquardsen  Read Replies (2) of 20681
 
Tom,

I read this article as well. This bit about the Euro being 30% backed by gold is a misreading by both the author of the article and many other commentators. What they have indicated is that 30% of reserves will be held in gold. Since there will not be anything close to 1 to 1 backing of the Euro with reserves the resultant gold backing of the Euro will be considerably less than 30%. Also the European Central Bank will hold roughly 20% of the reserves that the member states currently hold to back their currencies. Since there will be no reduction of money supply that means an 80% reduction in reserves currently backing the currency. These excess reserves will remain in the hands of the national central banks and will no longer count as reserves and will not be governed by these comments regarding holding 30% of reserves in gold.

In addition the countries that are likely to enter the Euro already hold close to 30% of their reserves in gold. So when they transfer reserves to create the European Central Bank they already have more than sufficient gold to transfer without needing to purchase any gold. In fact 80% of their current gold holdings will remain in their hands and they will be free to buy and sell these regardless of the 30% figure.

The gold reserves behind the Euro have been the subject of incredible misinterpretation by people who don't look carefully at what is being said. Also there are some gold bugs who are at best being overenthusiastic and at worse trying to manipulate a gold rally who have been trying to misrepresent what has been said as the Euro being back by gold. The Euro will have no where near 30% gold backing.

Henry

PS before anyone mentions it I AM NOT A GOLD BEAR. But this Euro story has been completely misreported.
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