Sunday, September 17, 2006

Central Banks Selling Gold

This is not to claim that this fact explains gold's recent price dips, but the Reuters article is worth a read anyway.

[Thanks to for the photo.]

The price is dipping because:

1. Tensions between Israel and Hezbollah have calmed;

2. Tensions with Iran are coasting and we're getting numb to the bickering;

3. Oil companies have found huge new sources of petroleum within US borders, lowering oil prices and anxiety. This is not directly related to gold; but when oil prices rise, CPI figures rise, and the gold price rises as people believe gold is a hedge against inflation. If price inflation looks like it will remain contained or go down, short- to medium-term investors relax and go back to business as usual, which is what they've been doing recently. (Long-termers like myself stay with gold until the Fed stops playing around with our money supply, but that's a different subject. See my earlier posts here and here.)

4. Gold's present role as unofficial back-room currency standard makes for increased speculative movement, and speculation is hard to analyze, especially when some of those involved are central banks.

This central bank selling may be having some impact because they've stepped up the pace in the last few weeks given the coming annual deadline. However, they might not sell all they are allowed to, because gold is becoming more "valuable." (Actually it isn't; it's the various currencies that are losing their value. See other earlier posts on economic theory if you're curious. They're easy to read; start with the first and read forward.)

I'm going to hang in there on gold's side for the moment, because the fundamentals are still with us. The dollar has got to give, unless the Fed raises rates, which I don't think they will do for fear of causing a real estate bust; plus there are all those greenbacks in the coffers of the Asians, Saudis, and who knows whom else. At some point, they will get tired of absorbing our debt at their own expense.

That's my two cents worth, anyway.


Blogger David Ashley Gilbert said...

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9:11 AM  

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