Vote For Gold

Central Banks ‘Vote For Gold' Due To Sovereign And Currency Concerns

‘Vote For Gold’"You have to choose, as a voter, between trusting to the natural stability of gold and the natural stability and intelligence of the members of the government. And with due respect to these gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold."

The above quotation from GB Shaw who was born on this day July 26, in 1856, is ringing true during these uncertain political and economic times. 

Emerging market central banks have increased their holdings of the monetary asset over the past few years as the sovereign debt crises in the EU, U.S. and Japan put pressure on reserve currencies such as the Japanese yen, U.S. dollar and the euro.

Falling gold prices to their lowest levels in almost three years made gold more attractive to many central banks.

Russia, Greece, Ukraine, Kazakhstan, Kyrgyzstan, Belarus and Azerbaijan increased their gold holdings in June according to the IMF data.

Mozambique, Serbia and Tajikistan increased holdings in May, which updates as countries report according to Bloomberg.

Russia which now has the seventh-largest gold holdings in the world, added just 9,000 ounces to its holdings, which now stand at 32.0 million ounces. 

Russia, which has purchased significant volumes of gold in recent years, has increased its reserves by almost 10% over the past year alone. 

Kazakhstan, another regular bullion buyer in recent months, also increased its holdings in June. The country's central bank bought more than 45,000 ounces, taking its reserves to 4.2 million ounces.

Russia and Kazakhstan increased their gold reserves for a ninth straight month in June.

Greece added 1,000 ounces to its 3.6-million-ounce reserve, while Kyrgyzstan and Belarus also added a small amount of gold to their holdings.

Ukraine returned for the second month running in June, adding another large 80,000 troy ounces of gold to its official reserves, which now stand at nearly 1.3 million ounces.

Azerbaijan bought nearly 65,000 ounces, lifting its reserves to more than 250,000 ounces. It is the sixth consecutive month the country has added to its official holdings, which in December stood at nearly nothing.

My view:

Since this article was written a few weeks ago, the price of gold has risen nearly $100 an ounce.

So the casual observer might consider this "an oversold bounce" or just "market noise".

Nothing could be further than the truth, in my view.

As Central Banks continue to load up on gold, the Federal Reserve continues its bond buying schemes.

With the global reserve currency continuing its fall relative to other fiat currencies, gold has one intermediate direction to go - and that is up.

Certainly there will be pullbacks along the way.  In fact, a pullback is overdue at this time based on the charts.

But longer term, we are looking at a secular change in the way gold is viewed.

The current view "it's just a commodity" will be replaced with "gold is money" and "its the only sound money" future views.

Ironically, the future view is also the view from the distant past.

Socrates is smiling in his grave at our fiat currency folly.