EU central banks banned from selling gold

   Today the major central banks of EU, plus some satellite countries decided to prolong for 5 more years the old agreement on “not selling gold”. This decision sounds strange as at the moment no one on Earth is selling gold and everyone is trying to buy. The gold mines and real production are not capable to meet the demand as the price is kept artificially low with the means of market speculations.

   The old gold treaty was from the times when everyone thought gold is useless and everyone believed in fist-money world. Much gold owners then started to sell gold and the price went down.
   But today with deeply indebted governments and global financial system kept from collapsing only by the means of money-print, it is simply ridiculous to make an agreement on “not selling gold”.
   In fact today an agreement in opposite direction is needed as gold price can skyrocket at any moment unlocking an uncontrollable process of hyperinflation. It is not sure such an agreement can stop the inevitable, but at least can slow it.
   Last year Bundesbank announced the decision to repatriate its gold reserves from New York and Paris to Frankfurt. But soon after that it became clear FED will not send the gold immediately, but in a long procedure that has to end in 2020. I.e. FED has no gold to give it to Germany and will have to buy it on free market. Almost at the same time the political icon of Venezuela Hugo Chavez managed to successfully bring his country’s gold home. And for years it had become clear that countries with big trade surpluses are accumulating gold instead of valueless pieces of paper and measured in them government bonds with funny low interest rates.
   So if would be logical to expect central banks to make an agreement to oppose the gold and inflation panic. Instead, they are guaranteeing that their gold will not go to market. If fact such news can even accelerate the panic. Now is clear that the available gold reserves will be legally stopped from appearing on market. Not only has the economic logic said this is right. There will be also a legal regulation. I.e. even if someone decides to be mad and sell gold for paper in an attempt to save the financial system, he will not be allowed to do this…
   This way, with FED’s quantities symbolic, China and Russia only buying and now EU – banning selling, the only real gold on market will remain the new production. 3000 tons per year. This means a $100 billion market under the current price. But this is about the sum of current QE for only 2-3 months. Not counting the ECB and BoJ money-print. It looks really funny, isn’t it…

Dobri B.
May-19th-2014

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