Euro bullion blues
If the dollar is in trouble, will gold or the euro be
the better safe haven? Rodney Smith tries to
answer the question.
There's one group of people who have good reason to be
anxious about the onset of the euro. International gold
producers; the gold miners and the bullion traders.
Most of the major European central banks hold
substantial quantities of gold in their reserves. Bullion
enthusiasts say this confirms that gold never was
demonetised back in the 1970s. The fact that it is held
by the major banks shows, they say, that even central
bankers believe gold still has value as a currency.
Other experts, like Gold Fields Mineral Services, which
has just published a rather bearish outlook for the world
gold market, think gold is trading more and more like a
commodity.
The new European Central Bank does not need all the
gold and currency reserves held by the 11 member
central banks which are joining the Euro. Officials have
said it will hold just 15% of its reserves in gold. That will
leave member banks, (governors of the European Central
Bank) like those of Germany and France with large gold
holdings, which they may decide to sell.
Some countries - not all EU members - have already
sold much of their gold recently: Canada, the Czech
Republic, Australia and Belgium. And of course the gold
market is overhung by the prospect of sales by the
International Monetary Fund.
But central banks are cautious and skilful market
players. They are unlikely to offload large stocks of
bullion at relatively depressed prices. At $286.75 after
Christmas, an ounce of gold was barely $4 off its 18-year
low of a year ago.
Much will depend on how Europe's economies perform in
the coming year. Economic downturn causes
government spending to rise as demands on the
instruments of the social security net increase.
Government tax income falls. This makes them anxious
to look for other ways of raising money. Time was when
privatisation filled some of this gap - but the appeal of
selling off the family gold could become unstoppable.
But it's not all that bleak. There are very good reasons,
too, why gold could have an excellent year.
It is cheap, by any historic measurement.
It also becomes attractive in extremis; people go for gold
in times of trouble. The same is true of periods of
increasing prosperity, especially in developing countries.
India and China can be like large gold sponges.
And after all, the demand for gold in fabrication - that is
jewellery, dentistry and industrial uses - rose 14% last
year to 3,750 tonnes -half again as much as the 2,400
tonnes mined during the same period.
And, if the gold price remains around current levels for
much longer, marginal mines will close, and the supply
of new metal coming on to the market will shrink. The
rest, as they say, is economics. Until and if the central
banks decide to sell.
news.bbc.co.uk
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