International Economics

Foreign Central Banks Going for the Gold

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CNN Money says:

Last year, foreign central banks were net buyers of gold for the first time since 1997. India, China and Russia have been the biggest buyers. And more recently, the Philippines and Kazakhstan jumped into the fray with big purchases of the precious metal during the first quarter, according to data released by the World Gold Council Thursday.

The Chinese role in world gold is interesting, and unsettling for those of us counting on the U.S. dollar being worth more than a plugged nickel:

China is considered a stealth buyer of gold, said Boris Schlossberg, director of currency research at Global Forex Trading. As the world's largest producer of the metal, China often buys gold from its own mines and doesn't report those sales publicly. But in April 2009, China did admit to having added 454 tonnes, or a 76% increase, to its reserves since 2003.

Analysts suspect the country is continuing to buy gold and could in fact, be the world's largest buyer consistently. It simply doesn't reveal it's pro-gold stance proudly, however, because China is also the world's largest holder of U.S. Treasurys.

Announcing an aggressive gold buying spree is not in China's best interest because, for one, it might push gold prices higher. Secondly, it could devalue the U.S. dollar, which would subsequently lessen the worth of the country's portfolio of U.S. government bonds, Schlossberg said

I interviewed author Nathan Lewis about the reasons for and possible future of gold in international currency back in 2007.

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  1. unsettling for those of us counting on the U.S. dollar being worth a plugged nickel

    Actually, those of us counting on the dollar being worth a nickel are hoping for this.

    1. Indeed, I misphrased. Fixed now.

      1. Glad to be of help. If reason’s looking for a copyeditor, I’ll be available for employment at the end of August. No relocation expenses necessary!

  2. Don’t worry. The Chinamen just need that gold to cast a gargantuan statue of Lao Tzu.

    1. So long as it fires lasers from it’s eyes and makes that cool noise from Spielberg’s War of the Worlds, I’m down with the statue.

      1. “Its” eyes.

  3. http://www.telegraph.co.uk/fin…..olicy.html

    At what point do we stage an intervention?

    1. Awesome…

      Mr Obama’s cheerleader-in-chief in arguing the case for continued international deficit spending is the American economist Paul Krugman. This hyperactive Nobel prize winner has achieved almost celebrity status for his extreme neo-Keynesian views. Unfortunately, his frequent polemics on the supposed merits of letting rip public spending long since ceased to be based on objective analysis, and are instead argued as a matter of almost ideological conviction. He’s as much a fundamentalist as the “deficit hawks” he mocks.

      1. We have never had a President truly lose it. Nixon was close. But he pulled back from the edge. Wilson had a stroke but his wife kept things together. I think Obama, especially if the Democrats get destroyed in November may have some kind of a break down. What the hell are we going to do then?

        1. Well there’s always me waiting in the wings.

          1. You probably don’t even know you’re next in line.

            1. One good stroke of luck and he isn’t

              1. One good stroke of luck and he isn’t

            2. As retarded as it seems, I think it would be slightly better if Biden took over. At least he’d be an old school piece of shit politician who didn’t think he was a messiah, and would probably return things to standard, non-utterly-insane, just horrible, levels.

              1. He is kind of a Democratic Ford. A little goofy but would benefit from his predecessor being so bad.

              2. I’ve thought the same that as much an idiot Biden is, he would likely be a more normative piece of shit.

          2. Cuz Joe, you are the windbag beneath my wings…

        2. You ever play Fallout 3, John?

          1. No. Is that the plot?

            1. No, it’s just set in DC after a nuclear war.

              1. Does it actually use the real map of DC with real landmarks beyond the famous ones? If I bought the game would I be able to carpet bomb real neighborhoods like Dupont Circle or Adams Morgan? Walk around and shoot hipsters at Eastern Market? If so, I need to get that.

                1. Dupont Circle is there. Not sure about the rest, but it’s not 100% accurate and there are a lot of made-up towns. Alas, there are no hipsters. Just slavers, monsters, and mutants. Well, I guess it’s not so different from the real D.C. in that respect.

                2. Here’s hoping GTA goes with a Washington version. Taking out pols, beauracrats, and hipsters would be a blast.

                  1. GTA DC would be the best video game ever. I’d buy it and I hate video games.

                  2. Fucking A. That is brilliant. And you could bang hot congressional staffers as well.

                    1. That raises an interesting question. Would the Secret Service come a’knockin’ if GTA – DC included a side mission with assassination?

                    2. The original Dues Ex had a White House level that got nixed for reasons ambiguous to me even though I have inquired about it to some relevant people on several occasions.

        3. Once again, I quote Megatron…

          “Fall! FALL!!!”

        4. What you mean ‘We’, White Man ? 🙂
          But seriously, folks:
          1) TPTB pick a new President
          2) Biden resigns
          3) Obama selects the Pick as VP
          4) Obama resigns
          5) the Pick assumes the Presidency
          ….and Bobs your Uncle. 🙂

    2. I’m really starting to enjoy the hatred that the Brits have found for Obama, it almost makes the irish in me stop hating them.

      1. Me to. It is funny as hell they thought his candidacy was a good idea. If they had actually read his book, they would realize he is a half Kenyan with a serious “daddy never loved me” complex and a father who was ani-colonialist communist. That is not a good recipe for liking the UK.

        1. Someone mentioned the Peace Prize the other day, and it occurred to me that they should give one to Bush, too, since Obama is mostly an extension of Bush in military terms. Even more inept, but basically doing the same stuff.

          What amazes me is how many people leaped (off the cliff) to Obama’s defense when he won the prize. It was so stupid to give it to someone as some sort of pre-award for good behavior, especially considering that no one knew nothing about what the guy would do. I’d like to hope that all of the disappointment would stop people from anointing political saviors, but we’re too full of stupid to avoid doing it again.

          1. The election of Obama was really the penultimate expression of our social and political neurosis. Think about it. He was black so he allowed people to feel good about themselves voting for a black man. Racial neurosis check. He was young, so it allowed people to think they were going to relive JFK. Boomer nostalgia neurosis, check. And he was from the upper middle class uber educated doucheoisie. Status and class neurosis check.

            It was really all there. A perfect storm of shallow stupidity.

            1. John, I don’t always agree with your posts but I must say, this was fucking beautiful.

              Well done.

              1. “It was so stupid to give it to someone as some sort of pre-award for good behavior, especially considering that no one knew nothing about what the guy would do.” Don’t you invest in a good dinner with a girl you would love to fuck? Same song, different dance.

                1. Got to hold out the reward as an incentive! Do you know nothing of behavioral conditioning?

                  1. Pl, I get the distinct impression you have brought out a lot of women-for coffee! 😉

                2. Uh, you don’t give Obama a peace prize so that you can fuck him. You give him a peace prize because you’ve already assumed that he won’t fuck you. And let’s look at how that worked out.

                  1. Epi, It is a money thing and yes, business would gladly bend over for more of it.

                3. First dates belong at Barnes & Noble or Target. You scoff, but its a fucking gem, the ladies respect your unique approach, and you can actually learn a lot about what kind of person they are by the books they show interest in or the items that catch their eye at Target. Trust me on this approach and you will not be let down.

                  1. Sudden aka ladies man, the only thing that catches my eyes at Target is the exit 🙂

                4. The Euros would give a prize to a cheese sandwich if it would snub George W. Bush.

                  Well, they would have last year. Already, I’m not so sure they still would.

                5. On the other hand….

                  The Nobel Peace Prize has officially become just like a Che t-shirt: if you have one, there’s something wrong with you.

            2. And Bush checked our nepotistic ignorant buffoon box, I suppose.

            3. “doucheoisie” That might be my new favorite term. Have you copyrighted that yet, because it is a bonafide winner.

            4. “penultimate”

              Eck, pet peeve penultimate.

              1. I hate that too. Penultimate means second to last, and that is all it means. What will the ultimate expression of our political neuroses be?

                1. My mistake. I will remember that.

                  1. Damn, and I was hoping you were being slickly pessimistic.

                  2. Could have been worse. Could have spelled it “pent ultimate.” Which I have seen, and yeah, it’s really worse.

                2. His re-election.

            5. INSTALANCHE!!!!!

            6. Congratulations John. Always nice to see good blog comments get some recognition

              http://pajamasmedia.com/instapundit/101816/

            7. The penultimate expression? What would the ultimate be? The Antichrist?

            8. I’m with you up until the last sentence. I think stupidity runs pretty deep at this point.

            9. It was really all there

              The factors you cite certainly helped, but I’d attribute his win primarily to his two greatest qualifications: 1) he wasn’t GWB, and 2) he wasn’t Hillary Clinton.

              -jcr

            10. If the election of Obama was the penultimate expression, ie next to last, what would make up the ultimate expression of our social and political neurosis?

              And why include everyone, instead of a certain type of boomer? It isn’t “our social and political neurosis”, it’s theirs.

            11. John: Brilliant…….but you forgot one element, and that element applied to my wife’s vote and of many of her friends: Got to vote AGAINST a much too beautiful, alleged (and that was enough) bimbo, with an unsophisticated accent and manner of speaking…..and those were sufficient reasons to vote FOR Obama. The final nail, for the perfect storm of stupidity.

      2. I never had an Irish in me. Some Italian and German, but never Irish.

        1. That really doesn’t surprise me Suki. Also, good morning.

          1. Good morning Astrid!

        2. That can be arranged.

            1. Lol, Suki.

          1. Please, Catholics (Irish and Italians) are too uptight. Jews make the best lovers. OTHH, half & half mixes are like ice on a hot day.

            1. Had some of that too, back before beloved came along.

            2. Is it the Jewish foreplay?

              You know, the hours of whining and begging.

              1. It’s the fact that they don’t confuse foreplay with yelling fore 😉

        3. That was supposed to be “any” not “an,” so which law did I follow?

      3. “irish in me”. Are you a redhead Astrid?

  4. Max|6.24.10 @ 3:29PM|#

    Go suck ron puals dick, morons. You peeple are fucking retarded. I`m done coming to this wingnut sight. this is my last post.

    1. I don’t believe it. If there were not a Max, we would have to invent one. He will show back up, either in ghostly sock puppet form or as Edward posting under a new handle.

      1. Actually, Max clocked in on the Krugman thread last night:

        Max|6.25.10 @ 12:41AM|#
        Cavanaugh isn’t worthy of picking the peanuts out of Krugman’s shit.

        If you ignore the multiple times he pasted the “last post” into other threads, I make it 9 hrs 22 minutes he was “gone.”

        I didn’t even have time to set up a betting pool on how long he would stay away.

        1. Thats longer than “Edward” ever stayed away after making his “last post”.

          1. Monomaniacal dementia is a pitiful thing.

      2. If there were not a Max, we would have to invent one.

        Why not just ignore the actual one? Thanks. I know you can do it.

        1. I try.

          With Max and Tony and Chad, I really try to ignore them and not respond.

          Every once in a while, though, my fingers just gotta stroke that keyboard.

          Basically, though, the idea is sound. If everyone simply refused to respond to or acknowledge their posts, not even bothering to flame them, they would soon go away.

          1. The problem is that some people are not as self-controlled as others. We would have to have some sort of protective association in place to prevent the few bad apples from harming everyone else.

            1. Regulated libertarianism?

              I think that is the oxymoron of the month.

          2. I’ll give Tony his fair credit, every so often he does make a good faith effort to argue his point in a way that he thinks may resonate with libertarian sensibilities. I can respect a guy who authentically makes his points. And Tony doesn’t seem like a dick the way Max is. Max is just pure worthlessness and childish ad hom.

            1. Tony is silly and ignorant. But he is not a troll. And does occasionally make a decent point. Max or Edward or whoever he is is just an asshole.

          3. I dunno. I think it my be time to declare a STFU-Lonewhacko-style fatawah on them.

  5. The fact that central banks (and its not just China) have switched over from selling gold to buying gold is one reason I don’t think there’s much downside in gold even at these prices.

    There are central banks that have a big exposure because their gold reserves are essentially being used to back the otherwise naked gold shorting being done at their behest. Last year one of the Euro banks got caught out when an unusual number of futures contracts were held for delivery, and the German central bank had to fork over more than a billion in sweet, sweet bullion.

    1. My investments are 80% Canadian dollars, 20% precious metals.

      (This doesn’t include my undiversified, highly leveraged, residential real estate portfolio.)

      I’ve been long gold more or less continuously since 1998.

    2. Doesn’t that same argument apply to the US dollar. There’s a whole lot more dollars floating around as reserve currency than there is gold.

    3. “The fact that central banks (and its not just China) have switched over from selling gold to buying gold is one reason I don’t think there’s much downside in gold even at these prices.”

      You think central banks are infallible? A bunch of the sold gold A WHOLE LOT lower than this in recent years.

      The huge buying now by CBs is more of a signal to sell than to buy.

      Plenty of downside.

  6. Excellent news!

  7. Just to clarify the Krugman position: “The previous unilateralist war criminal president was wrong to ignore the wisdom of the international community, but the current one is right?”

    Good thing we didn’t get McSame who would continue and even worsen all of the evil policies of Bush.

  8. It is one thing when “gold bugs” are buying gold. They can often be dismissed.

    But when boring, stodgy central bankers start buying gold, that is downright scary. (In the sense that they have lost confidence in the US dollar.)

  9. this is where reason gets the “breaker, breaker 1 – 9” from the kochs and implements a hit piece on ron paul or steve forbes for advocating a commodity backed gold currency. this way they don’t seem partial to an honest money policy that ron paul advocates.

    1. Yeah, that did occur to me.

      The nations listed in the post – India, China, Russia, Kazakhstan, the Philipines – aren’t exactly ones that are noted for probity.

      If the Bundesbank starts buying gold, THEN it is time to panic.

  10. The chinese central bank has got to be the worst investor on the face of the planet. It buys Treasuries en masse when they are yielding the lowest rates ever, with significant signs of dollar inflation and with chinese currency poised to rise against the dollar. Then, once gold is at an all time high and obviously at bubble levels, they start buying lots of gold.

    1. they dont buy US treasries for the investment… they do it in order to peg their currency.. this is how you artificially drive down the Yuan relative to the dollar.

  11. considering that no one knew nothing about what the guy would do.

    It’s past time to revive the term “Know-Nothing-ism”.

    ——–

    Monomaniacal dementia is a pitiful thing.

    Is this a reference to Max, or to obama?

  12. Who in hell lifted my ban on private ownership of gold?? You do know that all these central banks are privately owned, don’t you?

  13. doom

    Come on, Warren, try again, with FEELING.

  14. WE NEED A WEIGEL THREAD
    WE NEED A WEIGEL THREAD
    WE NEED A WEIGEL THREAD
    WE NEED A WEIGEL THREAD

    1. Thought that was at todays daily links?

  15. The chinese central bank has got to be the worst investor on the face of the planet. It buys Treasuries en masse when they are yielding the lowest rates ever, with significant signs of dollar inflation and with chinese currency poised to rise against the dollar.

    The Chinese central bank is only partially an investor.

    It is also a strategic arm of Chinese policy. It buys those Treasuries to

    (1) keep its biggest customer afloat while it shifts from exporting to the US to internal consumption and exports to the rest of the world (with which it has been setting up bilateral non-dollar denominated exchange facilities), and

    (2) as strategic leverage against the US, should it ever be needed.

    It has been buying gold to hedge against the dollar crashing, which makes sense, given its large dollar holdings. Besides, who knows what it pays for the gold it buys internally?

    Gold may be in the early stages of a bubble, no question. But if you graph gold against other asset bubbles in recent years, then its got about another 150 – 200% to run to the peak.

    1. And unlike other bubbles, Gold actually has some sound supply and demand reasons behind its price rise. Supply is down and demand (real demand by people who use the stuff not speculator demand) is up.

      1. Dude, only 14% of gold is used in industry. The vast majority is jewelry and investment, which is speculator demand. So no, it’s not real demand.

        1. Just keep in mind, when the shit really hits the fan and nobody has access to an ICP-MS. How are you going to tell if some-metal-or-another is really what your payee says it is. With gold, you just use a touchstone.

  16. They’ve been watching Glenn Beck and ignoring Anthony Weiner’s advice.

    Everyone should ignore the Weiner.

    Is that racist or juvenile?

    1. Bof.

      1. As in, that be bof, ignant and disrespectin. Yadig? Get an amber lamps.

  17. “No state shall make any thing but gold and silver coin legal tender in payment of debt.” Ignore me at your peril.

  18. There’s going to be some real hell to pay when China and India realize that paper gold to physical gold is about 100:1. Demand delivery, and do not accept “unallocated” physical gold, either. Oh, and fuck ETFs. That’s a sucker’s bet, at best.

    1. I was in ETFs for awhile, and then did a little reading. I could not bring myself to bet my own real money that they actually have unencumbered gold in the vaults, especially since the biggest one has its gold at the bank that has the largest (known) short position.

  19. I have been assured by no less an expert as Paul Krugman that capital investment and government spending are completely homogeneous activities. So we can spend our way to a brighter future, just as if private industries were investing in new technologies and productive gain strategies. However, public spending is even better because it is targeted.

  20. Interesting note from a very experienced gold trader:

    In one of the more remarkable displays of gritty determination and tenacity that the gold market has seen since it first began its decade long bull market, the longs have completely negated the bearish downside reversal day pattern that emerged on the charts after Monday’s significant sell off from a new record high price. This simply does not happen very often, in any market for that matter, and has never occurred in gold since 2001. If you are a short, you have to be reeling in stunned disbelief. There are serious buyers at work in gold.

    This performance is not merely impressive (that is too mild of a word), it is stupendously rare! Again, at the risk of beating a dead horse, the technical action in gold is telling us that the character of the market has completely changed from the pattern that we have grown accustomed to seeing the past 9 years and has now taken on a life of its own. This is acting like a market that wants to go higher, considerably higher.

    1. Charts? Technical action? Utterly worthless crapola.

      May as well throw virgins into volcanoes.

  21. We can either pay government employees to do relatively valueless jobs, akin to making holes and filling them, or we can use tax cuts to encourage private companies to start and grow.

  22. Buying gold now?? It seems that the judgement of central bankers is about the same as it was when they got us in the current economic mess.

    1. Well Charles, we can either lose 95% of the value of our current holdings in fiat money markets and T-Bills when inflation arises and the USofObama defaults, or we can lose a mere 75% when gold eventually goes bust. What would you do?

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