Monday, December 05, 2011

You can print money but you can’t print gold.

Which is probably the reason why the banking fraternity regard gold as a rebellious cousin to be tolerated out the back, but not shown to the public.

Unfortunately printing money does not increase the value of money quite the contrary, but it does improve the price of gold. A good excuse to buy gold incidently.

Some banks still instinctively understand the value of gold as evidenced by their continued buying of the precious metal. According to the World Gold Council central banks have been accelerating their gold purchases over the past few months. Are they shoring up their assets in preparation for an expected fall? Can they see something on the horizon that we can't?

The Bank of Korea for example. Which bought 25 tone of gold in June and July this year followed that up with regular purchases including 15 tones in November. "We bought the gold as part of our diversification strategy and based on long-term investment considerations," Lee Jung, an official at the bank's reserve management group, told reporters.

The bank said recently they bought gold in November for the second time this year, 'to diversify its foreign reserves, joining its counterparts in other countries in seeking protection against financial instability and inflation.'

According to Arne Lohmann Rasmussen, the head of rates, foreign-exchange and commodity strategy at Danske Bank A/S, "South Korea has huge reserves. When they are buying gold, it’s supportive for the market."

So with the instability in the financial markets caused by excessive debt, even the central banks will turn to the only stable of gold bullion to protect its interests.
"Emerging economies including Russia and China have been adding their gold reserves, as the situation in the United States and Europe is not looking great," said Hou Xinqiang, an analyst at Jinrui Futures in China.

"Growing appetite for gold from central banks will surely support gold prices to further rally in the next few years, and gold is gaining an increasingly prominent status on central banks' books."

"While the bulk of central bank gold is still held in North America and Europe, a build-up of gold reserves in emerging markets has been a consistent feature over the last few years," said the council in a research report published recently.
But China’s gold accumulation is moving forward in leaps and bounds. Gold purchases in Sept hit an all time high of 56.9 tones. In the July to Sept quarter over 140 tones of gold bullion was bought by China.

China has been encouraging its citizens to buy and hold physical gold and has widened the number of banks allowed to import gold. It has been encouraging its citizens to buy gold and the encouragement of gold investment has been emphasised with gold exchanges now opening around China with the first opened on Jun 28th this year. In fact China's demand for gold has increased 25 percent, much more than the usual global average of seven percent.

And China's Middle Class is growing by the day buying more and more gold. With 320 million Chinese introduced in to the gold market, the gold purchases in the western world will pale into insignificance.

What will that do to the gold price I wonder?

Indeed, is China going to be the first country to adopt a gold standard? It seems quite possible that the new gold standard may be 'hosted' not by the US or Europe (even Switzerland has bailed out) but by Asia with its determination to reduce its exposure to foreign debt. Converting this debt into gold is a sound practice.

Gold is the only money around. All else is simply paper, Asia knows this, the banks know this. Astute gold bugs know this. Even some parts of the mainstream media are starting to wake up. And the more people do, the more demand is going to be placed for gold and the higher the value is going to be placed on gold as real money. The rise is going to be exponential and soon only the central banks, institutions and the very wealthy will be able to afford a simple ounce of gold. That is, if China does not have it all.

The gold standard is not far away now. Time to buy gold. Afterall, you can print money but you can't print gold.

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