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Gold – Will the West buy or kill?

April 5, 2012 4 comments

Even before an old war ends, the Middle East sees the start of a new war. The West needs a few thousand tons of gold. Will they buy – or kill for that gold?

The Middle East has been a war-zone from WWII to now  |  Source & courtesy - McClatchy; cartoonist - Jim Morin in Miami Herald on March 19, 2012  |  Click for image.

The Middle East has been a war-zone from WWII to now | Source & courtesy - McClatchy; cartoonist - Jim Morin in Miami Herald on March 19, 2012 | Click for image.

See Ma … no hands

Under the Bretton Woods agreement, the US dollar became the reserve currency of the world. For getting European support, essential for the implementation of Bretton Woods system, the US flooded Europe with dollars.

Various mechanisms like the Marshall Plan, the IBRD, were used. This flood of US dollars, anchored European currencies – and by proxy, became equally useful. For the last 60 years now, European nations there was no need to maintain any foreign exchange reserves.

Unlike the rest of the world.

Even major economies like Japan, China, India, Brazil, Russia.

Are  things changing now?

In common with most developed countries the U.K. has no reserves worth speaking of. In truth, what is interesting is how low the reserves held by all the developed nations now are. Switzerland is the only European country with significant reserves, with $340 billion squirreled away, whilst Germany has $257 billion, and France has $172 billion. The U.S. only has $148.5 billion, although when you can print the world’s reserve currency maybe that doesn’t matter so much. Overall, however, it is only the emerging nations that have built up significant cash piles.

Central banks in the emerging markets increasing their holdings of gold has been a big part of the bull market in the metal. At the end of last year, official net purchases of gold started to rise dramatically. In the third quarter of 2011, central banks added 148.8 tonnes to their gold stocks, more than double the entire amount of government buying in 2010, according to the World Gold Council. Interestingly, the Greek central bank has been slowly adding to its holdings of gold, which would be sort of handy, should they happen to decide to re-introduce the drachmas one day.

But the next phase will be developed world central banks moving back into precious metal; the U.K., Germany, France, Switzerland and potentially the U.S. as well.

The U.K. has given the first hints that policy makers are at least thinking about it. Actual buying maybe some way off. And if they start, it will be done discreetly, otherwise the price will shoot up.

But when it starts to happen seriously, it will provide the bull market in gold with a whole new impetus. (via Why Gold’s Bull Run Could Continue – SmartMoney.com).

Iraq & Afghanistan out of the way; is it the turn of Iran and Pakistan  |  Source & courtesy - McClatchy; cartoonist - Jim Morin / Miami Herald (March 21, 2012)  |  Click for image.

Iraq & Afghanistan out of the way; is it the turn of Iran and Pakistan | Source & courtesy - McClatchy; cartoonist - Jim Morin / Miami Herald (March 21, 2012) | Click for image.

Permanent war-zone

In the last 60 years, most of these economic strategies have been implemented covertly.

For a 100 years now, the West has waged war against Islāmic economies. These anti-Islāmic wars started with WWI (1914-18), against the Ottoman Empire and Germany. Most recently, the West waged wars against Islāmic economies in Iraq, Afghanistan, Libya – and probably Iran in the near future.

Will Pakistan escape this fate?

If Pakistan falls, will India be far behind?


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