Lear Capital: Shutdown Sets Table For Central Bank Gold Feast

2010_01_05_17_53_260001Funny how you never hear stories about our own central bank buying gold.  It’s always some other central bank or banks, that capture headlines in this regard.  Maybe we own so much it doesn’t matter.  Maybe we don’t own any, (as is the belief of many) and the less our central bank says about gold the better.  When you can print the world’s reserve currency, who needs gold?

Answer:  Other central banks of the world.

According to a recent article, 15 central banks were buying gold in July with Russia amongst the leaders.  In that article you will find a chart depicting growth of Russia’s gold reserves.  I had a hunch and decided to match Russian gold purchases with the gold price trend.  Sure enough, as gold prices have trended lower this year, Russian purchases have trended higher.  Dah!  I guess they understand that whole “buy low” deal.

Again I ask, if the central banks of the world are still buying gold, what do they know that we don’t?  And, who are they buying it from?  I can only surmise, they buy from those weak hands who prefer to sell low and buy high.

Now as government shuts down, some say GDP could drop by more than 1% if the event is prolonged for any period of time.  Of course this is highly deflationary, as hundreds of thousands of workers have their umbilical cord, tied to disposable income, cut.  Hence, today’s falling gold prices.

Once again, this sets the table for other central banks to feast on lower gold prices.  As the weak hands dispense with holdings, the savvy buy more.  They know gold is a longer term strategy than just an open trader’s window wherein traders try to capitalize on short term fluctuations.  And so it should be for those who desire to protect savings and retirement accounts against another debt crisis, inflation, rising interest rates and market volatility.

Diversification is the key.


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