06/21/10 Stockholm, Sweden – As the yellow metal continues its fairly continuous ascent in value — and major fiat currencies largely do the opposite — net purchases of gold by central banks are looking more and more commonplace. Recent commentary from Ambrose Evans-Pritchard points out the latest sign of euro zone weakness has happened to roughly coincide with the World Gold Council’s “restated” — and more than doubled – estimates of Saudi Arabian gold reserves.
From the Telegraph:
“‘The probability of a simultaneous default of two or more euro-area large and complex banking groups rose sharply,’ it said. This is a unsettling admission. Which two ‘large and complex banking groups’ were on the brink of collapse? We may find out in late July when the stress test results are published, a move described by Deutsche Bank chief Josef Ackermann as ‘very, very dangerous.’
“And are we any safer now that the EU has failed to restore full confidence with its €750bn (£505bn) ‘shock and awe’ shield, that is to say after throwing everything it can credibly muster under the political constraints of monetary union? This is the deep angst that lies behind last week’s surge in gold to an all-time high of $1,258 an ounce.
“The World Gold Council said on Friday that the central banks of Russia, the Philippines, Kazakhstan and Venezuela have been buying gold, and Saudi Arabia’s monetary authority has ‘restated’ its reserves upwards from 143m to 323m tonnes. If there is any theme to the bullion rush, it is fear that the global currency system is unravelling. Or, put another way, gold itself is reclaiming its historic role as the ultimate safe haven and benchmark currency.”
This news out of Saudi Arabia, alongside other countries mentioned above – and especially Russia and China — are showing a coherent pattern of changes in the way countries are dealing with reserves. Considering the general scarcity of gold, several high-profile purchases by central banks could drive up prices up even more quickly than we’ve witnessed in the past few years.
You can read more background in the Telegraph commentary on gold reclaiming its currency status as the global financial system unravels. Also, more details on the updated Saudi Arabia estimate are available from the BBC.
Best,
Rocky Vega,
The Daily Reckoning
Rocky Vega
Rocky Vega is publisher of Agora Financial International, where he advances the growth of Agora Financial publishing enterprises outside of the US. Previously, he was publisher of The Daily Reckoning, and founding publisher of both UrbanTurf and RFID Update -- which he ran from Brazil, Chile, and Puerto Rico -- as well as associate publisher of FierceFinance. Rocky has an honors MS from the Stockholm School of Economics and an honors BA from Harvard University, where he served on the board of directors for Let’s Go Publications, Harvard Student Agencies, and The Harvard Advocate.
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“Gold has outlasted Empires and Fiats.” So said a commenter at the Telegraph. True, True. There is however one thing that has outlasted gold and always will. People. The real problem here is not the world currency’s that many have lost confidence in. They have lost confidence in themselves and their governments.