In this part 2 of the Sound Money Project "Dollar in Crisis" series, Dr. Edwin Vieira, Jr. is interviewed at George Mason University by Rutger van Bergem on April 9, 2012.



Part 1 of "Dollar in Crisis" series with Dr. Thomas Rustici on March 27, 2012 can be seen here .

The Sound Money Project Interview with Dr. Judy Shelton on March 14, 2012 can been seen here .

By Juan Reardon
Venezuelanalysis.com
Thursday, August 18, 2011

http://venezuelanalysis.com/news/6433

San Francisco – On Wednesday Venezuelan President Hugo Chavez confirmed reports that his government is “bringing home” 211 tons of gold currently stored in international banks and that plans are underway to nationalize the entire gold mining industry in the Caribbean nation. In a move aimed at protecting the Venezuelan economy from the global economic crisis, the president also said his government plans to transfer the country’s international cash reserves out of the U.S. and Europe and into Brazilian, Chinese, and Russian banks.

The physical transfer of Venezuela’s international gold reserves, from the vaults of foreign banks to the Caracas-based headquarters of the Central Bank of Venezuela (BCV), will increase the BCV’s gold reserves from the current US$ 7 billion to some US$ 18.3 billion.

According to Chavez, the “repatriation” of 211 of the 365 tons of Venezuelan gold reserves currently held in foreign banks is “a healthy measure for the country” and “an absolutely sovereign decision” that will benefit the Venezuelan people and economy.

Joking about the vast quantity of gold to be transferred, Chavez told BCV President Nelson Merentes and Minister of Finances and Planning Jorge Giordani he could “loan them a basement” at the Miraflores Presidential Palace

According to Finances and Planning Minister Giordani, the decision to return Venezuela’s gold to the BCV “is a question of prudence and protection.”

“We are protecting ourselves from a market that is disturbed,” he said.

As a result of the economic crises spreading across the U.S. and Europe, the price of gold recently hit an all-time high of $US 1,800 dollars an ounce.

Speaking by telephone to the state TV station VTV, Chavez also said that he was reviewing “the laws allowing the state to exploit gold and all related activities ...we are going to nationalize the gold and we are going to convert it, among other things, into international reserves because gold continues to increase in value.”

Venezuela, which produces an estimated 4.3 tons of gold per year, recently changed the laws governing the percentage of gold that mining firms could export. In 2010, it increased from 30 to 50% the amount of gold a company could send abroad, requiring the firms to sell the remaining 50% to the publicly-owned BCV.

“Next week we are going to nationalize gold – all of the gold, for Venezuela. We can not allow them to continue taking it” affirmed the Venezuelan president.

Rafael Ramirez, Venezuela’s Minister of Energy and Petroleum, explained that the Law of Gold Nationalization to be passed by executive decree will not only “bring order” to gold mining in Venezuela but will prevent further “looting” by transnational firms.

In an article published yesterday, Reuters reported that gold mining firm Rusoro produced some 100,000 ounces of gold in Venezuela last year. At a price of $US 1,800, that’s worth an estimated $US 180 million.

“For the first time in history the Venezuelan state will begin to definitively and decidedly control a sector that is completely out of control,” affirmed Ramirez.

The new law will allow Venezuelan people and government, “to prevent the resources from leaving the country” and maintain “a monopoly on the commercialization” of Venezuelan gold.

Preventing Theft

Speaking to reporters yesterday, Venezuelan Minister of Electric Energy and the next Secretary of the Union of South American Nations (UNASUR), Ali Rodriguez, affirmed that Venezuela’s international financial reserves “run the risk of being robbed” by those governments opposed to his country’s domestic and foreign policies.

Venezuela’s decision to return its gold home is "a legitimate act, a sovereign act, unquestionable and indeed necessary," said Rodriguez.

Earlier this year, after Libya’s $US 200 billion in international assets were “frozen” by U.S. and European powers as part of the NATO attacks, Venezuela’s Chavez called the move “a robbery” by the U.S. and its European allies.

At that time, Chavez asked “where are the international reserves of our peoples? Where are they deposited? They are in the North’s banks, because that is what the world economic dictatorship demands.”

While the United States unilaterally cancelled the direct convertibility between gold and the U.S. dollar in 1971, many national governments still hold significant amounts of gold reserves as a means to defend their national currencies against an increasingly unstable U.S. dollar.

According to Minister Rodriguez, 80 tons of Venezuela’s gold reserve was sent and stored abroad by the government of Democratic Action (AD) president Jaime Lusinchi (1984 – 1989).

Rodriguez, the future head of Latin America’s UNASUR, also affirmed that he would encourage other Latin American nations to “move their reserves to a good safe house” and out of the economically troubled Global North.

In a move aimed at preventing the global economic crisis from further affecting the Venezuelan economy, the Venezuelan government also plans to transfer the country’s US$ 6 billion in international cash reserves, currently held in U.S. dollars, European euros, and British pounds sterling, to banks in Brazil, China, and Russia.

For further reading:
"Venezuela formally asks Bank of England to return its gold" , Bloomberg, August 22, 2011
"Game Changer – Is Chavez in your Woods, Mr Bear, looking for Gold?" , Ben Hinde, August 22, 2011
"Chavez move could drive gold through the roof - and put confiscation on the cards again" , Lawrence Williams, August 22, 2011
"Venezuela Brings Gold Home" , Charles Scaliger, The New American , August 21, 2011
"Venezuela Moves to Take Over Gold Sector" , Wall Street Journal , August 18, 2011

From New Zimbabwe
Sunday, May 15, 2011

http://www.newzimbabwe.com/business-5127-RBZ+urges+gold-backed+Zim+dollar/business.aspx

The central bank says the country must consider adopting a gold-backed Zimbabwean dollar, warning that the US greenback's days as the world's reserve currency are numbered.

The government ditched the Zimbabwe dollar in 2009 after it had been rendered worthless by record inflation levels, and adopted multiple foreign currencies with the US dollar, the South African rand, and the Botswana pula being the most widely used.

Finance minister Tendai Biti says the country needs at least six months of import cover and a sustainable track record of economic growth, inflation, stability and above 60-percent capacity utilisation in industry before the Zim dollar can be brought back into circulation.

However, central bank chief Dr Gideon Gono said the country should consider adopting a gold-backed currency.

"There is a need for us to begin thinking seriously and urgently about introducing a gold-backed Zimbabwe currency that will not only be stable but internationally acceptable," Gono said in an interview with state media. "We need to rethink our gold-mining strategy, our gold-liberalisation and marketing strategies as a country. The world needs to and will most certainly move to a gold standard and Zimbabwe must lead the way."

Gono said the inflationary effects of United States' deficit financing of its budget were likely to impact other countries, leading to resistance of the greenback as a base currency.

"The events of the 2008 global financial crisis demand a new approach to self-reliance and a stable mineral-backed currency, and to me gold has proven over the years that it is a stable and most desired precious metal," Gono said. "Zimbabwe is sitting on trillions worth of gold reserves and it is time we start thinking outside the box, for our survival and prosperity."

By Alasdair Macleod
FinanceandEconomics.org
Thursday, December 16, 2010

http://www.gata.org/node/9428

This thought is prompted by a forensic study of the Bank for International Settlements’ records and accounting procedures with respect to its dealings in gold, which was presented by Robert Lambourne to the Gold Symposium in Sydney on 9th November. The link to his report is here . Lambourne points out that the BIS was founded in 1930, when settlements between central banks routinely involved gold, and the primary function of the BIS was to facilitate these settlements without the physical transfer of bullion. This involved gold accounts being maintained at the BIS for gold owned by central banks, with other central banks at the main depository centres. Lambourne cites the example of the pre-war German Reichsbank, which held gold through the BIS in Amsterdam, Berne, Brussels, London and Paris.

Central banks were offered two different types of account at the BIS, earmarked and sight: earmarked accounts recorded gold held separately and specifically for a central bank, and sight accounts were non-specific. Earmarked gold is allocated, while sight gold is unallocated; earmarked is custodial and sight is co-mingled.

The flexibility of the system allowed a central bank to diversify its gold reserves in a number of centres through a politically neutral institution, and it made sense to allocate some of this into a fungible account to settle transactions with other central banks. But that was pre-war, and before the US, with the co-operation of the IMF and other European central banks, demonetised gold.

Today, the BIS still operates earmarked and sight accounts for central banks, but crucially, rather than have the bulk of gold in earmarked accounts with a smaller float in fungible sight accounts, the bulk of central bank gold is now held in unallocated sight form. Lambourne brings this point out in his analysis of the 2009/10 BIS Annual Report, which shows in Note 32 that the BIS holds only 212 tonnes for central banks in earmarked accounts, and 1,704 tonnes on its balance sheet in sight accounts.

Furthermore, the BIS accounts disclose that almost all of the 1,704 tonnes is held at central banks in unallocated sight form. This confirms that the central banks themselves also operate sight accounts.

So to summarise so far, out of 1,912 tonnes at the BIS, 90% of it is now unallocated and nearly all of this gold is held in unallocated accounts at other central banks. While this sight gold at central banks is technically deliverable on demand, there is no apparent requirement for them to actually have it. It is therefore entirely possible for a central bank to retain only a small portion of the total owed on sight accounts, which after all is what banks have done from time immemorial.

The temptations to use physical gold from these unallocated sight accounts to supply the market have been enormous, given the progressive demonetisation and discreditation of gold by the BIS founder members. It is easy, without proper audits, to keep these activities secret from the markets and even from other central banks not in the inner circle. It would be very interesting to know, for example, the terms under which India agreed to buy 200 tonnes of gold from the IMF. Did she actually take delivery into an earmarked account, or was it a pure paper transaction across sight accounts? If she had insisted on an earmarked account, would the deal have gone to someone less picky? Was the IMF gold itself earmarked or sight, existing or non-existent? As an outsider from the inner BIS circle the Bank of India is not in a position to suspect she may be the victim of a pyramid scheme run by her superiors; nor indeed is any other of the minor central banks with sight accounts in London, New York or Zurich.

We must hope for the sake of financial stability that such suspicions are without foundation, but this hope is untenable while the major note-issuing banks refuse to provide independent audits of their activities. If these central banks have been operating a fractional sight system, then it could explain how they have managed to supply so much bullion into the markets while appearing to maintain their official reserves.

China and Russia must be watching this with great interest. We can assume that their intelligence services are more aware of the true position than the general public, and if they also conclude that the Western central banks are running a fractional system using sight accounts, this knowledge hands them great economic power.

It is relevant to bear this in mind, because it will condition the US’s response to what is developing into a destructive gold crisis. Political and strategic considerations will have to be weighed as well as purely financial and practical ones. It would be downright stupid, for example, for the US to confiscate privately owned gold, without international agreement from Russia China and India as well as the Europeans to take similar action. And how co-operative would any nation be when they discover that the gold they thought they had at the BIS, the Fed and the Bank of England has actually vanished?

This is important because the basic problem is that government and banking debt around the world are both rapidly moving towards default, and since governments are guaranteeing the lot, the pace of monetary creation is accelerating. The consequence is that the gold suppression schemes, which have existed for the last one hundred years in one form or another, are finally coming to an end. We are trying to guess how dramatic that end will be. It will be difficult enough to stop a run by unallocated account holders on the bullion banks, without forcing a cash-payout amnesty. But if the central banks themselves cannot supply the necessary bullion to prevent this, the prospect of a total collapse of paper money will be staring us all in the face.

By Jack Farchy
Financial Times, London
Sunday, September 26, 2010

http://www.ft.com/cms/s/0/b9859c7e-c99b-11df-b3d6-00144feab49a.html

Europe's central banks have all but halted sales of their gold reserves, ending a run of large disposals each year for more than a decade.

The central banks of the eurozone plus Sweden and Switzerland are bound by the Central Bank Gold Agreement, which caps their collective sales.

In the CBGA's year to September, which expired on Sunday, the signatories sold 6.2 tonnes, down 96 per cent, according to provisional data.

The sales are the lowest since the agreement was signed in 1999 and well below the peak of 497 tonnes in 2004-05.

The shift away from gold selling comes as European central banks reassess gold amid the financial crisis and Europe's sovereign debt crisis.

In the 1990s and 2000s, central banks swapped their non-yielding bullion for sovereign debt, which gives a steady annual return. But now central banks and investors are seeking the security of gold.

The lack of heavy selling is important for gold prices both because a significant source of supply has been withdrawn from the market, and because it has given psychological support to the gold price. On Friday bullion hit a record of $1,300 an ounce.

"Clearly now it's a different world. The mentality is completely different," said Jonathan Spall, director of precious metals sales at Barclays Capital.

European central banks are unlikely to sell much more gold in the new CBGA year, according to a survey by the Financial Times.

Although many central banks declined to detail their sales plans, the responses of some, along with numerous interviews with bankers and consultants, suggest it is unlikely there will be a return to the trend of the past decade, when CBGA signatories sold on average 388 tonnes a year.

The central banks of Sweden, Slovakia, Ireland, and Slovenia said they had no plans to sell, while Switzerland reiterated a previous statement to the same effect.

The CBGA was first signed after gold miners protested that central banks' rush to sell was depressing prices.

In previous years signatories haggled for individual allowances to sell under the CBGA, but the most recent renewal of the agreement in 2009 contained no such quotas, according to Darko Bohnec, vice governor of Slovenia's central bank.

For further reading:
"Germany's Central Bank Plans to Cap Gold Sales to 6.5 Tons Under Accord" , Bloomberg, September 27, 2010

By Christian Gomez
The New American
Friday, August 27, 2010

http://www.thenewamerican.com/index.php/economy/economics-mainmenu-44/4424-ron-paul-calls-for-audit-of-us-gold-reserves

In an exclusive interview with Kitco News , Congressman Ron Paul (R-Texas) revealed that next year at the start of the newly inaugurated 112th United States Congress, he would introduce a new bill to audit the U.S. gold reserves, which are reportedly stored at the New York Federal Reserve and Fort Knox.

The reason behind this bill is that in the event “we ever get around to deciding we should use gold in relationship to our currency, we ought to know how much is there,” Paul told Kitco.

“Our Federal Reserve admits to nothing, and they should prove all the gold is there. There is a reason to be suspicious, and even if you are not suspicious, why wouldn’t you have an audit?” said Paul.

This is not the first time Rep. Ron Paul has suggested that there be a full audit of the county’s gold reserves. Paul recalled that “In the early 1980s when I was on the gold commission, I asked to recommend to Congress that they audit the gold reserves — we had 17 members of the commission and 15 voted not to [recommend] the audit.”

The two votes in favor of an audit came from the two gold advocates who pushed for the creation of the commission in the first place — Senator Jesse Helms (R-N.C.) and Rep. Ron Paul.

At the time, Sen. Helms and Rep. Paul were the leaders of Congress’s gold coalition, which included Republicans Sen. James McClure of Idaho, Sen. Barry Goldwater of Arizona, Rep. Philip Crane of Illinois, Rep. James Collins of Texas, Rep. Steven Symms of Idaho, and Democratic Rep. Larry McDonald of Georgia, the latter of whom was at the time also a National Council member of the John Birch Society.

In fact, Rep. McDonald introduced a similar bill to that of Ron Paul’s newly proposed 2011 gold reserve audit bill. In 1979, Rep. McDonald sponsored H.R. 555, entitled: “A bill to require the Comptroller General of the United States to audit annually the gold held by the United States on the first day of each fiscal year and to report his findings to Congress.” McDonald presented the same bill again the next year, this time as H.R.555, and was unable to garner any cosponsors.

A few years earlier, on August 8, 1974, Rep. Phillip Crane introduced H.R. 16345, entitled, “A bill to provide for an audit by the General Accounting Office of all gold owned by the United States.” He too was unable to gain support for his gold reserve audit bill.

Although McDonald and Crane’s respected gold reserve audit bills received no cosponsors at the time, Ron Paul hopes to ride the wave of his recent landmark Federal Reserve Audit bill that passed the House this past year, but was eventually gutted in the Senate by Sen. Bernie Sanders of Vermont.

If Paul’s Federal Reserve audit were able to pass the House and make strong headway in the Senate, despite Democratic majorities in both houses of Congress, then come January, with a potential newly-elected “Tea Party” Congress, Paul’s bill to audit U.S. gold reserves might make headway. It would be fundamentally important to any future plans to return to a pure gold standard.

The last and only time that an audit was performed on the gold held in Fort Knox was issued within hours of President Dwight Eisenhower’s inauguration on January 20, 1953. After 20 years of Democratic rule in the White House and President Franklin Roosevelt’s Executive Order 6102 of April 3, 1933, in which private ownership of gold was outlawed, the American people had become worried whether all of the gold that FDR and the federal government confiscated was still in storage.

Ron Paul cited this audit of over 50 years ago as the “only one decent audit done”; however, Chris Weber from LewRockwell.com summarized the various problems with that audit as follows:

1.��� Representatives of the audited group were allowed to make the rules governing the audit. No outside private experts were allowed.
2.��� Those government bureaucrats involved were inexperienced in their tasks, by their own admission.
3.��� The entire audit of the largest gold hoard ever concentrated in history lasted only seven days.
4.��� Only a fraction of the gold was actually tested for purity. Later, the officials put this fraction at just 5 percent.
5.��� Based on that fraction, the official committee reported that, in their opinion, all the holdings would have matched their records if they'd all been tested.
6.��� If the audit was accurate, the fact remains that almost 80 percent of the gold went overseas in the coming years. If the audit was not accurate, the amount of gold lost could have been even more.

Although that audit may have satisfied the American public of 1953, which “was still used to accepting official government statements at face value,” Weber writes, in the decade since then Americans "have lost much of their respect and belief in the words of their government,” as a result of scandals and lies ranging from President Lyndon Johnson’s Gulf of Tonkin incident, the sinking of the USS Liberty , Richard Nixon’s Watergate fiasco, Bill Clinton’s lying under oath about his sexual affair with Monica Lewinsky to President George W. Bush and Secretary of State Colin Powell's false “irrefutable” evidence that Saddam Hussein was building “weapons of mass destruction” and possessed direct links to the September 11 attacks.

With a great many Americans having lost faith in their government, any audit of U.S. gold reserves will not come without scrutiny, but 50 years since there was an actual full audit, one wonders if the gold is still there. After all, as Alex Newman pointed out in The New American , the United States government has been using the gold to keep the price of gold low against the dollar so that Americans don't become aware of the amount of inflation that has been occurring owing to the government's and Federal Reserve's money policies.

When asked if he thought “there is any truth to claims that there is no gold in Fort Knox or the New York Federal Reserve,” Paul replied, “I think it is a possibility.”

That possibility alone is one reason why Paul says there should be an audit, and as he said before, “even if you are not suspicious, why wouldn’t you have an audit?”

In the interview Paul expressed discontent over the new tax burdens for selling gold in transactions of $600 or over that was passed in Section 9006 of the Patient Protection and Affordable Care Act, commonly known as ObamaCare. In regard to this Paul said, “For every transaction of over $600, gold dealers have to fill out a form; it is a lot of paperwork.”

As for whether he would run for President in 2012, Ron Paul remained elusive, offering his usual response that it was still too early to tell. If Paul does run and win, he would be the first President since Ronald Reagan seriously to consider returning to a gold standard, and hopefully the first President since William McKinley actually to have such a proposal enacted, such as the Gold Standard Act of 1900.

In Ron Paul’s office is a portrait of President Grover Cleveland, who like Rep. Larry McDonald was a hard-money constitutionalist Democrat. Regardless of Paul's political willingness to run or not for the presidency, one thing is sure: come January 2011, he will push for an audit of the United States’ gold reserves in his effort to restore sound economic policies consistent with the U.S. Constitution.

For further reading:
"The Gold Audit" , The New York Sun , August 31, 2010

By Constance Gustke
CBS MoneyWatch
Wednesday, January 20, 2010

http://moneywatch.bnet.com/economic-news/article/is-there-gold-in-fort-knox/385523/

Buried inside a 109,000-acre U.S. Army post in Kentucky sits one of the Federal Reserve's most secure assets and its only gold depository: the 73-year-old Fort Knox vault. Its glittering gold bricks, totaling 147.3 million ounces (that's about $168 billion at current prices), are stacked inside massive granite walls topped with a bombproof roof. Or are they?

It's hard to know for sure. Few people have been inside Fort Knox, a highly classified bunker ringed by fences and multiple alarms and guarded by Apache helicopter gunships. When the U.S. finished building Fort Knox in 1937, the gold was shipped in on a special nine-car train manned by machine gunners and loaded onto Army trucks protected by a U.S. Calvary brigade. And the fort has been pretty much off limits since then. A U.S. Mint spokesman said in an email statement to MoneyWatch that the accounting firm KPMG, which audits the Mint, "has been present in the vault at Fort Knox." The Mint won't comment on exactly how much gold is in there, though.

That's why U.S. Rep. Ron Paul, R-Texas, a 2008 presidential candidate known for his libertarian streak, wants to have a look around. Paul introduced a bill to audit the Federal Reserve, which includes Fort Knox's gold. "My attitude is: Let's just find out what's there," he says.

Despite conspiracy theories to the contrary, no serious Fed watcher thinks Fort Knox is wholly goldless — not even Paul. The push by Paul and a conspiracy-theorist group known as Gold Anti-Trust Action Committee (GATA) to open Fort Knox's 22-ton door is more about their loathing of the Federal Reserve and its purported growing powers. "The gold market is being manipulated by the Fed," says GATA spokesman Chris Powell. "It's involved in gold swap agreements with foreign banks. Gold is a major determinant of interest rates."

The bad news for "Goldfinger" buffs, say gold analysts, is that Fort Knox doesn't really matter much anymore.

Fort Knox began losing its luster when the United States went off the gold standard in 1971. Before that, gold bars packed into a secure vault gave people faith in the country's currency. Today, however, Fort Knox's gold is now an asset on the Federal Reserve’s balance sheet, not a key part of our monetary system.

Though Fort Knox's security overkill may seem a quaint relic of bygone days -- like the Beefeaters guarding Buckingham Palace -- the gold there and at U.S. Mint facilities adds up to one of the world's largest bullion holdings. Still, it's a tiny part of the nation's total assets. In a $13.8 trillion GDP economy, 147.3 million troy ounces of gold barely registers.

"It may lend some confidence to investors that we have large gold reserves," says Mark Zandi, chief economist at Moody's Economy.com. "But it's more symbolic than substantive."

The Fed’s gold is valued at a tremendously low figure -- just $42.22 an ounce. The rock-bottom figure was set in 1973, two years after we left the gold standard, primarily to avoid wild accounting swings. "What would happen if the price of gold drops dramatically?" asks Dimitri Papadimitriou, president of the Levy Economics Institute at Bard College. "The Fed balance sheet would be dramatically lower."

The Fed won't be unloading large stashes from Fort Knox any time soon. Doing so would flood the market and send the price of gold spiraling downward. "A small, vocal group of gold bugs would be against it," says John Irons, research and policy director at the Economic Policy Institute, a liberal think tank. "The Fed wouldn't want to stir things up."

But Irons and some other economists would like to see the U.S. gold reserves thinned out. "The Fed could sell a lot of the gold," says Irons. "It's better used in jewelry or electronics. It can be useful to the private economy rather than buried in a vault."

The sale could make a small dent in the $12.1 trillion national debt and, with the price of gold near its all-time high, this is a particularly good time to sell.

The reason Fort Knox will remain a mighty fortress, however, may come down to something Alan Greenspan once told Paul. When Paul asked the former Fed Chairman why the Fed hangs onto its hefty gold reserves, "Greenspan said, 'Just in case we need it,'" says Paul. "You hold onto it because it's the ultimate in money."

For further reading:

By Julian D. W. Phillips
Gold Forecaster
Friday, January 8, 2010

http://news.goldseek.com/GoldForecaster/1263002400.php

Is the Gold Price really Managed or Suppressed? We have absolutely no doubt that the gold price has been and may well be, being either suppressed or managed.

Just look at the record of gold sales in the 70’s, 80’s 90’s and in this century so far. Gold was sold during these periods, first by the United States. It was done to discredit gold as money and to support the U.S. $ as the prime global reserve currency. President Nixon removed the convertibility to gold and faced a world that did not want to replace gold with the $. Tying it to oil payments made it a globally needed currency. But the gold price rose and in so doing cried ‘foul’ pointing to the fact that the $ was simply an American government promise to pay. By discrediting gold it was taken out as an alternative money and by describing it as a ‘barbarous relic’, implied that paper money was superior. In fact it allowed the development of the present banking system with U.S. bankers very much at the global money helm.

Considered on a global scale it became clear that ‘paper’ money allowed more scope for banking systems than gold [it governed the money system, bankers didn’t]. So gold was shunned to the distant background of the monetary system.

After the U.S. gold sales stopped [the demand was just too great], the I.M.F. tried it, but these too failed. Then the implied threat that central banks would sell gold deterred investors and the price steadily fell from a peak of $850 to $275. This fall was supported by central banks lending gold to gold producers to hedge forward for many years to maximize income and was repaid when the gold was produced, effectively ‘shorting’ the market.

In 1999, with the arrival of the €, the Eurozone banks made the “Washington Agreement”, limiting their gold sales and ensuring their remaining gold reserves were not devalued. This agreement, while supporting the arrival of the €, helped to ‘contain’ the gold price and discourage any flights to gold from the new and untried currency.

Now add to that far more evidence than we could gather, from GATA and other sources and we believe the evidence is irrefutable that the gold price has been suppressed and managed.

Who will end gold price suppression and management?

Take a look at today’s central banks responsible for gold price suppression and look at their present policies. The European Central Bank Gold Agreement promises not to increase of open new leasing or lending of gold. Britain is not in a position to do so, nor inclined to do so after its gold sales debacle. The U.S. could but at heart and with historical evidence will not sell gold [it seems they may have lent far more gold than they admit to? Don’t expect any new gold hedging again for there are insufficient gold mining executives who would want to place their careers in such a toilet, again.

The Third Central Bank Gold Agreement is a farce with less than a tonne sold since its inception. So count out significant future central bank gold sales in support of currencies.

Now look to the East and we see that central banks are now buyers, not just ‘net buyers’, but big buyers, having bought over 300 tonnes in 2009. And they are still buying persistently, quietly each weekday. We point to Russia and China specifically. But let’s not exclude India [200 tonnes of I.M.F. gold so far – they have indicated they will buy any leftovers too], and other smaller banks, following their lead.

Why are these countries and perhaps more in the future buying gold? Simply put, the trust that existed in the $ is diminishing. With $ reserves sprinting towards $3 billion in China, they are very worried that the fall in the value will tumble and they are right to feel that way, when one looks at the almost imperial attitude of the U.S. money Lords in Treasury and the Federal Reserves and their attitude to the international value of the U.S. $. Reality tells us that it is not a major concern to them. So if you were China, O.P.E.C. and other $ surplus holders wouldn’t you feel vulnerable? That’s why they want to reduce that vulnerability through gold and currency diversification.

Yes, $ surplus holders are in a cleft stick with little way to turn but to the $, at the moment. But with a potentially new petro-currency being formed and China soon to turn to a ‘basket of currencies’ in trade payments rather than just the $, the signs are there that the days of the $ in international trade are numbered. It may take some years but the fact that it is on the way makes all realize that major currency crises are on the way. With gold an important ‘counter to the swings of the $’ it is imperative that gold contents of foreign exchange reserves be increased in those countries whose reserves are growing, or suffer the damage a falling $ will bring.

So how will this end gold suppression and management?

It takes gold sales to hold down and manage of gold prices. Lending won’t do it now will hedging any more, because any large sales of gold will be snapped up without a really significant and semi permanent lowering of the gold price. When you find huge buyers in the market, whose only concern is not to drive the gold price higher on small purchases, you don’t sell gold to manage or suppress price.

Right now these central bank buyers want tonnage, large tonnages, but it is not there at the moment, so they content themselves with buying small amounts persistently as it comes onto the market. It’s a dealers dream to find a big seller and place it with a big buyer and not move the price. It’s a buyers dream to buy big quantities and neither move the price nor be noticed. And that’s where the market is now. Yes, short-term forays into the market may happen to even out moves, but not by central banks of note.

So any scheme from now on to suppress or manage the gold price will face central bank buyers who will take all gold on offer. Even large quantities could move with little price movement.

By David Roman
The Wall Street Journal
Monday, December 28, 2009

http://online.wsj.com/article/SB20001424052748704718204574616280863871104.html

Strong dollar equals falling gold price, right?

Except, perhaps, when Asia's central bankers are involved.

Three-quarters of the region's $5 trillion in foreign-exchange holdings are parked in U.S. dollars. A desire to diversify away from the greenback, though, has become evident. The dollar's share in reserve accumulation dropped to less than 30% in the third quarter, Barclays Capital estimates.

Admittedly, knowing exactly what is in central bank reserves takes guesswork, but analysts think most diversification in 2009 favored the euro.

Recently gold has turned up as a second alternative. The Reserve Bank of India stirred markets when it revealed it purchased 200 tons of gold from the International Monetary Fund in October, increasing gold's share of central bank reserves to 6.4% from 3.6%.

Even if other central banks don't start making large purchases like India's, they will likely remain a substantial buyer as reserves continue to pile up. In the 12 months through November, the banks added around $800 billion to their foreign-exchange holdings, a side effect of their efforts to slow the appreciation of local currencies.

China, which has seen its reserves rise by more than 50% in the past two years to about $2.3 trillion, has bought 450 tons of gold during the period, Merrill Lynch estimates. That is a substantial chunk in a market where annual turnover is about 3,800 metric tons. Accumulation of reserves by Asia's central banks will likely continue as long as strong regional growth and high interest rates continue to attract foreign investors.

A shift in portfolios, like India's, would only add to this, and there is scope for this to happen. Gold accounts for around 2% of reserves in emerging markets, Merrill Lynch calculates. That compares with a 10% average globally, and more than half of all holdings in the case of the U.S. Federal Reserve, and France's and Germany's central banks.

Asia's central bankers will move slowly, particularly with gold prices still above $1,000 an ounce. But a shift toward the global average would mean more buying -- regardless of what the dollar does.

By David Lew
Commodity Online
Wednesday, December 23, 2009

http://www.commodityonline.com/news/Can-China-beat-US-in-gold-reserves-in-10-years-24146-2-1.html

China has set the most ambitious task on gold reserves and gold mining: take the country’s gold holdings from the current 1054 tonnes to a massive 10,000 tonnes in the next 10 years.

Is this grand task a realistic plan or a golden dream? Chinese officials say the dragon country wants to overtake the United States in gold reserves. America is the world leader in gold reserves. America owns 8133 tonnes of gold reserves that accounts for 76.5% of its foreign exchange reserves. Naturally, the Chinese plan is to ensure that bulk of its foreign exchange reserves--currently held in the forms of US dollar and bonds--is turned into gold reserves.

Unlike the United States, China has been acting slow all these years in building up its gold reserves. In 1981, China had 395 tonnes of gold holdings; it increased to 500.8 tonnes in 2001, and 600 tonnes in 2002. In April 2009, China officially announced that it has increased its gold holdings to 1054 tonnes. Since then, Chinese officials and People’s Bank of China have been meticulously chalking out plans to build up gold reserves in the next one decade.

China’s move to step up gold reserves got a moral boost when last month India—a large consumer of gold in the world—bought 200 tonnes of gold from the International Monetary Fund (IMF) for a big amount that Chinese would have never thought of purchasing. According to Zhang of the China Gold Association (CGA), India’s decision to buy IMF gold has been the real boost for China’s recent spirited moves to step up gold reserves.

“In view of the declining US dollar value, it is paramount that China steps up gold reserves. How to do this is the only question that China is debating these days. The possible steps include opening up new gold mines, aggressively going for gold mining, buying gold from the open market etc. All said and done, it is imperative that China needs to buy more gold,” Zhang points out.

China has emerged as the largest consumer and producer of gold in the world. It is, thus, natural that the Chinese mop up gold reserves to keep up its status as the No 1 gold consuming and producing nation in the globe, bullion analysts argue. In 2007, China overtook South Africa to become the world’s largest producer. The World Gold Council and global consultancy GFMS have already predicted that China will overtake India as the world's largest consumer as well.

China raised its national gold holdings in April by buying domestically mined gold. Bullion commentators like Mark Robinson are surprised as to why China has not yet shown any interest in buying gold from international markets. As a result of this, shares of Chinese gold mining companies have been rocketing all these months in the last one year. Shanghai and Hong Kong-listed shares of companies like Zijin, Shandong Gold and others are up 3x-4x this year alone. But the main factor at play is fear of a U.S. dollar devaluation.

Erik Bethel of seekingalpha.com points out the following major thrusts to explain how the Chinese appetite for gold reserves is simply rising and rising:

People in China are seriously starting to take notice of the fragility of the U.S. dollar and are loading up on commodities.

Chinese retail investors are also starting to take notice. As an example, there are "gold retail stores" popping up throughout major cities where individuals can buy mini gold bullion. There's even a China Gold Store located in Beijing Airport's new Terminal 3.

Another example is that while it was illegal to buy gold two years ago, Chinese citizens can now go to the bank and purchase "paper gold" certificates. Paper gold is basically the Chinese equivalent of an ETF and is supposedly backed by bullion held at the banks.

Chinese gold mining stocks are red hot and up 2-4x since last year.

China has US$2 trillion and is going to start deploying it in overseas mining assets. Following are also some of the major points you wish to read on China’s gold mining spree:

China’s domestic gold production has risen by 15% annually compared to the 3% decline in global production in 2006. This tremendous increase has been due to rapid capital expansion and low costs of labor. Chinese gold producers have gained enormously from the record high gold prices as investors worldwide are seeking stability due to the decline in the value of the dollar.

Domestic producers still suffer from a lack of scale. In 2000, there were about 2,000 gold producers - most of them relatively small and unsophisticated by international standards. Few are able to operate on a global platform, though the number of producers had shrunk to about 800 in 2007 after mergers and acquisitions and restructuring and consolidation. Most of these firms' technological standards and management are weak and inefficient.

China’s oldest and largest gold producer is the China National Gold Group Corporation (CNGGC), which accounts for 20% of total gold production in China and controls more than 30% of domestic reserves. CNGGC also controls Zhongji Gold, the first publicly listed gold mining company in China.

China's gold reserves are relatively small (about 7% of the world total). Production has usually been concentrated in the eastern provinces of Shandong, Henan, Fujian and Liaoning. Recently, western provinces such as Guizhou and Yunnan have seen a sharp increase, but from a relatively small base.

Zhaoyuan, a Shandong provincial city of a population of 580,000, has more than 60 gold mines operating in the hills around the city. They annuall produce about 15% of China's total gold - the most in the country.

In the last five years (2002-2007), China's Geological Survey Bureau found that five new gold deposits with reserves of 600 tons were found.

Top foreign investment has come from Canada and Australia. Though foreign investment still constitutes a very important part gold mining expansion, since 1995 it has no longer been actively encouraged by the Chinese government.

Vancouver-based Jinshan Gold Mines Inc. started production in July at its Chang Shan Hao gold mine in China's northern province of Inner Mongolia, reaching 19,000 ounces of gold by December 18. The mine is designed to produce about 120,000 ounces of gold per year, making it one of the country's largest producers.

Gold Fields and Australia's Sino Gold Mining Ltd., have set up a joint venture focused on discovering large gold deposits in China with the potential to produce about 500,000 ounces a year. Sino Gold has been buying stakes in Chinese gold deposits and explorers. In May it started production at its Jinfeng mine in southern China, with planned gold production of 180,000 ounces per year.

For further reading:
"China Set To Drive Up Global Demand For Gold" , Adrian Ash, December 18, 2009

By David Lew
Commodity Online
Tuesday, December 1, 2009

http://www.commodityonline.com/news/Is-China-going-crazy-after-gold-reserves-23411-3-1.html

Once again, China is making news on the hottest commodity—gold. China, the largest producer and consumer of the yellow metal these days, has announced that it wants to build up gold reserves. And how much? China says the country is eager to step up gold reserves to a massive 10,000 tonnes in the next 10 years.

Is China going crazy after gold? Yes, it looks if the recent statements coming out from the Chinese government is any indication, China is going indeed crazy after the yellow metal. In fact, gold reserves began to become big news in April this year when China announced that the country had increased its gold holdings to 1054 tonnes from 454 tonnes in 2003. Since then, almost every country—China, India, Russia, Brazil and even Sri Lanka—have been making news by announcing that they all want to build more gold reserves.

Dipping dollar value, ongoing economic recession and stock market fluctuations are the main reasons for central banks of several countries to mull mopping up gold reserves these days. India’s Reserve Bank surprised most other central banks last month by buying 200 tonnes of gold from the International Monetary Fund (IMF). India is these days once again in the fray to buy additional gold reserves from the IMF.

Why is there a scramble for gold reserves by countries like China, India and Russia? Every country these days wants to diversify its foreign exchange reserves by acquiring gold and other hard assets in place of the US dollar that has been dropping in value in the last one year.

On Monday, a top Chinese official announced that the country is eager to increase its gold reserves to 6000 tonnes in the next 3-5 years and 10000 tonnes in the next 8-10 years. Big, golden ambition, indeed. But considering the fact that China has now 1054 tonnes of gold, taking the yellow metal reserves to 10000 tonnes in the next 10 years is going to be a challenging task.

Bullion analyst Mark Robinson says this is the biggest and most ambitious task that China has ever announced. “If China wants to take its gold reserves to 10000 tonnes in 10 years, the country needs to buy or acquire the yellow metal to the quantity of nearly 1000 tonnes per year,” points out Robinson. He says China might now go aggressive on gold production as the country has allocated big funds to find new gold mining destinations.

“China wants to emerge as the global leader in gold reserves. Given the aggressive play that China is showing on gold, it looks perhaps possible that China will emerge as the biggest holder of gold in the world in the next 10 years,” added Robinson.

Which are the countries that own the largest quantity of gold reserves now? Check out here:

**America is the world leader in gold reserves. The United States has 8133 tonnes of gold reserves as on September 2008 that accounts for 76.5% of its foreign exchange reserves.

**Germany has the second highest gold reserves at 3412.6 tonnes.

** France has 2508 tonnes of gold constituting 58.7% of its forex assets.

**Italy has 2451.8 tonnes of gold constituting 61.9% of forex reserves.

**China became the fifth biggest holder of gold reserves with 1054 tonnes.

**Switzerland has 1040 tonnes of gold reserves constituting 23.8% of total forex reserves.

**India which recently bought 200 tonnes of gold from IMF has 557 tonnes of gold reserves representing 3% of total forex reserves.

** The IMF, which currently holds 3,217 tonnes of gold, is the third-largest official holder of the precious metal. The IMF has made gold sales a key element of its new income model aimed at lowering its dependence on lending revenue to cover expenses.

For further reading:
"China to Increase Its Gold Reserves" , Erik Bethel, December 1, 2009
"China, gold, and the civilization shift" , Ambrose Evans-Pritchard, November 26, 2009

By Agence France-Presse
via Yahoo News
Wednesday, November 25, 2009

http://news.yahoo.com/s/afp/20091125/bs_afp/imffinancegoldsrilanka_20091125185909

WASHINGTON -- The International Monetary Fund said Wednesday it had sold 10 tonnes of gold to Sri Lanka's central bank for $375 million, as part of a restructuring of IMF financial resources.

It was the third IMF sale of gold in a month as the Washington-based institution, the world's third-largest official holder of the precious metal, seeks to reduce its dependence on lending revenue and bolster its finances amid the global economic crisis.

The IMF said the sale to the Central Bank of Sri Lanka was based on the market prices prevailing Monday.

On November 2, the IMF sold 200 tonnes of gold to India's central bank for $6.7 billion, then sold two tonnes of gold to Mauritius on November 16 for $71.7 million.

The IMF executive board approved in September the sale of 403.3 tonnes of gold. The fund, which currently holds roughly 3,000 tonnes of gold, is the third largest official holder of the precious metal after the United States and Germany.

The IMF said it would sell gold directly to central banks and other official holders for an initial period before selling the remaining amount on the open markets "in a phased manner over time."

By RIA Novosti, Moscow
Thursday, November 19, 2009

http://en.rian.ru/russia/20091119/156903575.html

MOSCOW -- Russia's Central Bank said on Thursday it is ready to buy 30 metric tons (965,000 troy ounces) of gold at market prices from the country's precious metals depositary, Gokhran, by the end of the year.

Central Bank First Deputy Chairman Alexei Ulyukayev said the means of payment for the gold will depend on the requirements of the Finance Ministry and will probably be denominated in rubles.

Ulyukayev played down fears that the timing of the purchase could prove unfavorable given the current high price of gold, currently over $1,000 per troy ounce on global markets.

"They are at the peak levels relative to the previous period, but predictions of price dynamics vary," he said.

The Central Bank's announcement to buy up gold comes amid increasing international assets held by the bank, which grew by $7.8 billion in the week of November 6-13 to $441.7 billion. The cash paid for the gold will be used by the Finance Ministry to cover next year's state budget deficit, predicted at 6.8% of GDP.

This year Russia is running a deficit of 7.7% of GDP.


For further reading:
"Russia to sell 30 tonnes of gold to central bank" , Reuters, November 19, 2009
"Russia's Central Bank ready to buy up gold from State Depository" , RIA Novosti, November 16, 2009

By Sandrine Rastello and Kim Kyoungwha
Bloomberg
Tuesday, November 17, 2009

http://www.bloomberg.com/apps/news?pid=20601087&sid=a_9ioLuRtQyk&pos

Mauritius bought 2 metric tons of gold from the International Monetary Fund , underscoring a drive by central banks to boost holdings as the precious metal trades near a record and the dollar slumps.

The $71.7 million sale to the Bank of Mauritius was based on market prices on Nov. 11, the IMF said in an e-mailed statement yesterday. The Reserve Bank of India paid $6.7 billion for 200 tons from the IMF, according to a Nov. 2 statement.

Gold has surged this year as the U.S. currency declines and investors seek to protect their wealth. Emerging-market nations, which have amassed stockpiles of foreign-currency reserves since the 1998 financial crisis, have shown increased interest in diversifying out of U.S. assets.

“Investors at different levels feel more comfortable” with some gold in their portfolio, said Albert Cheng , Far East managing director at the World Gold Council.

The purchase more than doubles the amount of gold held by the Mauritian central bank to 5.69 percent of its total foreign exchange reserves, from 2.34 percent at the end of October, the bank said in an e-mailed statement today. The acquisition partially reverses a decline from the 13 percent of reserves that gold accounted for on Dec. 31, 1979.

‘Ultimate Currency’

Gold for immediate delivery is headed for a ninth annual gain and touched an all-time high of $1,143.60 an ounce yesterday. The metal, which traded at $1,134.32 at 9:46 a.m. in London, is the “ultimate currency,” Gijsbert Groenewegen , a partner at Gold Arrow Capital Management in New York, said yesterday.

The Mauritian purchase is “another signal that emerging- market central banks are looking to increase their foreign- exchange allocation in gold,” Shane Oliver , head of investment strategy at AMP Capital Investors Ltd., said from Sydney.

The Dollar Index , a six-currency gauge of the dollar’s value, was little changed today near a 15-month low. The Federal Reserve has cut borrowing costs to an all-time low while the U.S. government boosted spending to combat recession in the world’s top economy, fueling speculation the currency will be debased.

“There are a lot of uncertainties in the U.S. dollar and not much confidence in other currencies,” AMP Capital’s Oliver said. “Gold is a viable option.”

The IMF sale forms part of a plan to sell a total of 403.3 tons to shore up the bank’s finances and increase lending to low-income nations.

Chinese Reserves

“The fund is standing ready for an initial period to sell gold directly to central banks and other official holders that may be interested in such sales,” yesterday’s statement said, repeating an earlier commitment.

China, the biggest gold producer, has increased reserves 76 percent to 1,054 tons since 2003 and has the fifth-biggest holdings by country, Hu Xiaolian , head of the State Administration of Foreign Exchange, said in April.

The world’s most populous nation may buy some of the gold now being offered by the IMF, Market News International said in September, citing two unidentified government officials.

For further reading:
"End of trend is nigh for central bank sales of gold" , Stephen Kirchner, November 17, 2009
"BlackRock says central banks to be net buyers of gold" , Reuters, November 16, 2009
"Gold Rush? Gold Squeeze" , Jeff Clark, November 16, 2009

By David Goldman
CNNMoney.com
Thursday, November 12, 2009

http://money.cnn.com/2009/11/12/news/economy/us_gold/

The government holds the world's largest gold reserve, but even with gold prices at a record high, the Treasury is unlikely to sell.

NEW YORK -- Gold is soaring to record high prices, and guess who has the biggest stash?

The U.S. government.

The Treasury Department has 261.5 million ounces of gold in its reserves, representing about a third of the gold stockpiles held by governments around the world. With gold selling at about $1,100 an ounce , that means Uncle Sam is sitting on $288 billion worth of the shiny stuff. (The vault underneath the New York Federal Reserve once held over one quarter of the world's monetized gold. Today, it holds about 500,000 gold bars, 95% of which is owned by foreign nations. This photo, taken in 1968, shows a "sitter" counting gold.)

Treasury's gold sits in vaults across the country. It holds about 25,000 bars in a vault five floors down, 80 feet below street level, in the New York Federal Reserve in Manhattan. The majority of the nation's gold reserves still reside in Ft. Knox in Kentucky.

But rather than sell it, the government is hanging onto its bullion.

So are other global central banks. In fact, as the dollar continues its downward spiral, many countries are even buying up gold.

Last week, the International Monetary Fund offered up 400 metric tons of gold, and the Reserve Bank of India bought 220 metric tons of it. Sri Lanka bought 5.3 metric tons in the auction as well. In the second quarter, central banks were net buyers of gold for the first time since 1997.

"Gold is gold," said Nathan Lewis, author of Gold: The Once and Future Money . "There's no real change in gold's value. Only the value of paper currency declines."

Gold has come in and out of fashion with investors over the years. In times of economic instability or inflation, gold demand and prices have trended higher. Despite wild price fluctuations over the years, gold has maintained its purchasing power for about the past 750 years.

"From the mid-14th century until now, you can draw a relative straight line in the purchasing power of gold, and every central banker in their heart knows that," said Judy Shelton, an economist and director of the National Endowment for Democracy . "Gold is universally recognized as a store of value. That's important because it denotes price stability."

Gold had been the standard currency for international trade for centuries. In fact, the Federal Reserve vault in New York has compartments for different countries. When one country would trade with another, a "sitter" would simply move bars from one compartment to another, according to David Girardin, spokesman for the New York Fed.

Gold's inherent value is buoying its resurgence in popularity. The comeback also raises important questions about the United States' own reserve position and the government's ability to maintain demand for U.S. Treasury bonds as the world catches the gold bug.

Governments' dependence on gold has waned over the years, but they still hold 848 million ounces of it, down 29% from the 1965 peak of 1.2 billion ounces, and just 10% from the 942 million ounces they held 50 years ago, according to the World Gold Council.

Curiously, Treasury still values its gold at $42.22 per ounce. Congress reached that figure in 1973, two years after the the post-World War II Bretton Woods gold standard, which had valued gold at $35 an ounce, was scrapped.

With gold selling at prices 26 times that amount, why doesn't the Treasury, and by extension, the Fed, realize those gains on their balance sheets by displaying the market value of their holdings? Or, with the gold standard abandoned, why doesn't the government sell off its reserves to put that money into the economy or pay off debt?

There are lots of reasons, ranging from the psychological to the practical.

"If we started selling gold from our official reserves, it would be recognized as a sign of weakness for the dollar," said Jeffrey Nichols, managing director of American Precious Metals Advisors and senior economic advisor to Rosland Capital. "America's relatively large gold holdings provide some psychological benefit to our currency."

Many gold experts and economists agreed that even though the gold standard has been abandoned for nearly 40 years, the world is still cleaving to its gold because it is a tangible asset.

Another reason for Treasury to hold tight is gold's fluctuating price. Just ask British Prime Minister Gordon Brown. When Brown was the nation's chief finance minister a decade ago, he decided that gold had become relatively useless to the government -- without the gold standard, it was just an inert metal, and it was expensive to store.

Brown sold off 400 tons, or 60% of the United Kingdom's gold, between 1999 and 2002. Brown's problem: Gold was selling at a record low inflation-adjusted average of $275 an ounce at the time. It turned out, had he waited 10 years, the U.K. would have made four times what it hauled in from the sale.

"Geithner doesn't want to be the Treasury secretary that sells gold at $1,100 an ounce and next year it's at $2,000," said Shelton.

Furthermore, a sale of all the country's gold wouldn't make much of an impact. With the nation's annual deficit at $1.7 trillion, a $787 billion stimulus package and a $700 billion bank bailout, $300 billion is kind of puny in comparison.

"The Fed has plenty of tools to pump money into the economy; it doesn't need to sell gold to do it," said Lyle Gramley, a former Fed governor. "The government has its gold by historic accident, but there's no reason why they'd sell it -- there's no motivation."

But most of all, a sale of the government's gold would be especially poorly timed now, since foreign central banks are lining up to add gold to their reserves. As a result, experts say a mass-sale of gold would mostly end up in other nation's coffers.

That could spell disaster for the U.S. government, which is trying to finance its economic rescue packages by selling record amounts of debt to foreign countries in the form of Treasury securities. As gold holdings take up a larger percentage of foreign reserves, Treasury holdings could be reduced.

Shelton, who believes that paper currency should have ties to hard assets, said the resurgence of gold buying should be unsettling for the government. The trend indicates that some foreign countries would rather hold onto an inert metal than Treasurys that pay interest. Treasurys have long been viewed as a riskless asset, because they are tied to the dollar and are backed by the U.S. government.

"If the trend continues, that could reduce the demand for Treasury securities and bonds' book value would go down," said Shelton.

By Carolyn Cui
The Wall Street Journal
Wednesday, November 11, 2009

http://online.wsj.com/article/SB125786272097541135.html

The world's central banks are likely to be net buyers of gold in 2009 after two decades of selling, sparking a race among analysts to figure out which country will step in with the next big purchase.

Since 1991, central banks have reduced their gold holdings by 10%. It is a trend that has long been cited as keeping an overhang on gold prices. Developed countries like Switzerland, the U.K. and the Netherlands all sold significant amounts of gold to diversify into other assets in pursuit of higher returns.

India's $6.7 billion purchase of 200 metric tons of gold from the International Monetary Fund last month, absorbing half the amount the IMF put up for sale, was the largest purchase by a central bank in 30 years. Now the market is engaged in a guessing game about which central bank may buy the rest.

Eugen Weinberg, an analyst with Commerzbank AG, is looking to China. Jeff Christian, managing director of CPM Group, a New York-based precious-metal research firm, says other Asian and Middle East countries may be likely candidates.

Wei Benhua, a former Chinese official, was cited by Chinese-language magazine Caijing on Monday as saying China, Brazil or Russia may follow India in buying IMF gold.

India's purchase has thrown central banks back into the spotlight as a potentially powerful force behind gold. Even relatively small changes in the balance of a central bank's reserves could have a drastic impact on gold prices because of the relatively small size of the market.

This year could mark a "watershed year," Barclays Capital analyst Suki Cooper said in a note to clients. And, even though central banks mightn't be big buyers of the precious metal, the prospect of added demand may provide key support to the market, they say.

China, Russia and Brazil have tiny holdings of gold relative to their overall foreign reserves, placing them among more likely buyers. China, for example, has just 2% of its reserves in gold, compared with the world average of 10.3%., according to the World Gold Council; and Russia is at 4% and Brazil 0.5%.

The most logical buyers are countries that are running current-account surpluses and that don't have their own domestic gold production, Mr. Christian said.

With a net inflow of dollars and euros every month, central bankers in these countries are worried about the growing exposure to these currencies and have the most desire to diversify into other assets. According to the IMF's International Financial Statistics, Malaysia, Singapore, Kuwait, Saudi Arabia and Venezuela are among other biggest surplus countries behind China and Russia.

Typically, central banks hold a basket of foreign currencies, bonds and precious metals in reserve, using it to make international payments or adjust the value of their domestic currency. The U.S. dollar was considered the preferred reserve currency for decades. But the greenback's recent decline has spooked many countries sitting on big dollar assets.

While China has become an obvious buyer, some analysts say the country is likely to buy production from Chinese mines rather than buy from the IMF. China, the world's largest gold producer, has $2.3 trillion in foreign reserve, with the majority in U.S. Treasury securities.

Even a tiny shift in China's reserves toward gold could have big ramifications, says Andy Smith, a senior metals strategist at Bache Commodities, a subsidiary of Prudential Financial. That makes it likely China probably won't make any big moves, he said.

For example, to increase its gold holdings to the world's average of 10%, China would need to buy $180 billion of gold, or about 5,400 metrics tons -- the equivalent of more than two years of the world's mine production. Gold prices would probably spike above $6,500 an ounce, Mr. Smith estimates, making the scenario highly unlikely.

To be sure, the recent surge in prices may deter many banks from buying right now. Since the Indian deal was announced, gold has gained 5%. On Tuesday, gold for November delivery rose for the seventh consecutive day, settling at a record $1,101.90 per troy ounce. India said it paid about $1045 an ounce.

India's purchase "highlighted in two ways the ongoing shift of central banks and governments from being net sellers of gold to net buyers, which we believe will likely continue to provide strong fundamental support for gold prices," analysts at Goldman Sachs said in a note to clients on Tuesday.

As of September, central banks around the world kept a total of 26,297 metric tons of gold, equivalent to 11 years of global production, down from 29,214 tons in 1991, according to the World Gold Council.

David Rosenberg, chief economist and strategist with Gluskin Sheff & Associates Inc., said he sees prices rising through $1,300 an ounce should China buy the remaining 203 metric tons of IMF gold.

For further reading/viewing:
"Ron Paul on Monetary Policy" (video), Campaign for Liberty, November 12, 2009
"A rock-solid case for gold reserves" , The Globe and Mail , November 11, 2009

By Dan Weil
NewsMax.com
Thursday, November 5, 2009

http://moneynews.newsmax.com/streettalk/china_india_gold_buys/2009/11/05/282070.html

Gold purchases by emerging market nations have combined with inflation fears to send the precious metal to record highs.

The latest emerging market acquisition news was India’s agreement to buy 200 million metric tons of gold from the International Monetary Fund (IMF) for $6.7 billion. That amounts to half of what the IMF has put up for sale.

Already in April, China revealed that it almost doubled its gold reserves — to 1,054 metric tons from 600 tons in 2003.

And traders tell the Financial Times that more purchases are coming from emerging market central banks as they seek safe haven investments after the financial crisis.

Source: Deutsche Bank, "Global Commodities Daily", Michael Lewis, 4 November 2009

The central banks are expected to buy gold from the IMF to diversify their reserves away from the dollar. Analysts see China, Russia and Middle East sovereign wealth funds as likely purchasers.

China’s gold reserves now account for only about 1.6 percent of its total foreign reserves, despite recent purchases, far below the global average of 10.5 percent.

India’s acquisition means that governments as a whole may be net buyers of gold this year for the first time since 1998. That would mostly come from IMF sales.

"Central banks in India and China will be happy to accumulate gold at these levels. I will not be surprised to see even some Southeast Asian banks buying gold," Aaron Smith, Asia head of the $1.65 billion Superfund, told Reuters.

For further reading:
"Gold comfort" , The Hindu Business Line , November 6, 2009
"Sri Lanka central bank buying gold to diversify reserves" , Reuters, November 5, 2009