Gold Forecaster - Global
Below is a
snippet from the latest weekly issue from www.GoldForecaster.com | www.SilverForecaster.com
Spain’s sales of gold
The Bank of Spain's recent gold sales are part
of a strategy to shift its reserves into more profitable fixed-income
instruments, Spanish Finance Minister Pedro Solbes
said last week. Anyone
with a modicum of knowledge of finance gasped at the sheer ignorance of the
In a statement that ignores the concept of
‘total returns’, the main market criteria for successful
investors, the Minister’s spokesperson quoted him as saying, "What
we aim to do is to sell gold, an unprofitable asset, to reinvest in
bonds, which are more profitable."
Clearly we all have missed something that he
has seen? After all, we
consider gold to have achieved a 130% rise in the gold price since 1999 a profit, don’t
He then went on to say, “The objective
of our reserves is to maximize their profitability," Solbes
said. This is from a
man so highly qualified that he was given the responsibility of managing Spain’s
finances. Methinks he
comes from the same stable as Chancellor Brown [sorry, Prime Minister Brown].
The Bank of Spain added to past sales of 80 tonnes with another 28 tonnes of
gold sold in May. None
of these sales were announced in advance, which is why we include them
in red in our Tables in the Gold Forecaster, the only two
Central Banks who are selling without the formal commitment to a limited and
described level of sales.
So far these sales represent 25% of its total reserves, now sold into
note that no mention of the Trade deficit needing covering was made, indeed
if we are to accept what the Minister has said there should be no drop in the
overall levels of reserves in Spain’s
accounts and no selling to cover trade shortfalls. All this unscheduled selling is
therefore the result of a planned strategic decision made years ago? This is stretching credibility,
surely? Ah, but then we must note that
this was a statement from a Politician, not a money-man. To us as we mentioned last week,
this is more likely a dipping into the ‘family Jewels’ to cover
It is reported that, “even during the Bank of England
and Bank of Switzerland gold sales period from 1999-2004, no three-month
tally during the Washington Agreement days has been as high as 170 tonnes of
sales into the market.” The fact that the price has not dropped
like a stone is a testament to the underlying strength in the market.
We don’t believe that the statement by Spain’s
Finance Minister is any more than a Press posture, a ‘red
herring’ for public consumption. It’s
callous disregard for the ongoing value of gold in the monetary system as a
Reserve Asset ignores the role it could have in the monetary system. The potential of this role is
indicated in this [spurious?] article from the Philippines: -
Gold operating as a monetary asset.
one moment do we believe the report that, “the Philippine central bank
may import gold to remove excess U.S. dollars in the financial system and
slow the Peso's appreciation, as reported by a local newspaper, quoting an
“unnamed central bank” source. This report also said that the
central bank is also looking at possibly selling gold from its reserves to
siphon excess liquidity in an effort to decrease inflationary pressure”.
But wouldn’t it be a major step forward
to gold being in its old controlling money role?
It is anathema to a Banker to be controlled by
gold in that way, but it would ensure a proper management of the printing of
money. That sort of control
brings accountability with it, which even Central Bankers don’t
like and could not live with.
The concept of buying gold to mop up excess $
liquidity is the same as simply exchanging trade surpluses for gold. Just as the Chinese are seeking
to use their dollars to the best effect by buying assets with them, so the
concept of buying and selling gold [albeit internally] in a similar way, is a
movement back to gold as central money. Would it work in a single
country in a world swamped with the $, where most trade is still done in the
obstacle to this policy would be the present low price of gold. Yes, internally in the Philippines it should work, but the sums of
money that constitute excess liquidity are huge, even in the Philippines. If this excess liquidity is
taken to the gold market, the tonnage of gold it would buy at present prices
would drain the market of gold and send the gold price rocketing. We have always maintained that
gold, in a monetary role, has to be at far higher prices than even the
most adventurous of forecasters would pitch. Hence, our disbelief in
if only it were true and gold were at several
thousand dollars an ounce?
In the next issue of the Gold Forecaster we
will look at whether the Central Bank Gold Agreement signatories will or will
not sell more than the sales announced to date.
By : Julian D. W. Phillips
Gold/Silver Forecaster – Global Watch
Please subscribe to www.GoldForecaster.com for the entire report.