Post by
bloomfield18 on Feb 15, 2007 12:34pm
The Gold Surplus
Dave,
There is another explanation to account for central bank lending of gold reserves. Up until the 1980’s there wasn’t very much call for a gold carry trade. Central banks never had the opportunity to earn much, if any, income from the more than 30,000 metric tonnes of gold sitting in their vaults gathering dust. By the 1990's an effective market mechanism was in place to handle gold derivatives, so banks could finally put their gold to work earning interest.
Anyone who has owned physical gold understands this problem. It sits in your safety deposit box, and once every few years you come in to take a look. It effectively removes your money from circulation. As a trader, the intelligent action is to buy physical gold when prices are low, sell when prices rise, and then purchase equity in mining companies instead. Buy gold at $325, sell at a higher price, and buy stocks like FRP as equity markets improve. It’s not the job of government to make money for investors.
What GATA wants to do is remove all central bank gold from the marketplace in order to create an artificial shortage and drive the price up far beyond historical levels. This would benefit certain investors (those investors who hoard gold), but would penalize consumers, who actually use the stuff.
Furthermore, the current price for gold is in line with historical pricing. In 1932, an ounce of gold cost $20.67. Today that same ounce costs more than $650. Inflating the price of gold to $2000, by restricting central bank lending, would not serve the interests of banks, who earn interest payments, or consumers.
And central bank participation in the gold carry trade could not be described as a cartel, since there is no evidence banks are conspiring together to suppress the price of gold. Rather, the objective is to earn interest payments through lending in the gold carry trade, that they would otherwise be forced to forego.
There are two sides to every story, and GATA represents the special interests of a small minority of investors.
B