battle royal

m22au · Apr 20, 2004

I enjoyed the bits about (1) the price being high and (2) that gold doesn't pay interest.

Quite amusing.

Quote from darkhorse:

I vote for an option the columnist didn't mention - coordinated preemptive policy to dampen a key warning barometer as US stimulus begets inflation and the ECB is eventually forced to ease.

If things get really interesting, gold vs central bankers = irresistible force vs immovable object. More wild swings than Studio 54. Cool.

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Why Is Europe Now Breaking Into Its Gold Vaults?: Matthew Lynn

April 19 (Bloomberg) -- Gold has always attracted its fair share of eccentrics. More than any other commodity in the financial markets, it has provided a haven for oddballs and conspiracy theorists.

Three Obvious Reasons

There are three obvious reasons why Europe is thinking hard about emptying its gold vaults right now. And one subtle one.

Let's start with the obvious.

One, the gold price is high. At more than $400 an ounce, the precious metal is at its highest in years. Back in 1999, gold went as low as $252 an ounce. UBS AG predicts it could reach $480 an ounce within a year.

Two, unless you melt it down for rings, it's useless. Gold no longer has any formal role in the monetary system. And, unlike some other assets, it doesn't really pay much in the way of dividends. Instead you have to pay guards to look after it.

Three, some EU countries need the money. France and Germany, and most of the other European nations, are running big budget deficits. Economies are weak. There is no scope for tax increases. Why not sell some of that gold?

All three of those are good reasons for running down central bank holdings of gold. Indeed, the British have already acted on precisely that basis. Under a 1999 agreement, the Bank of England disposed of 395 tons of gold in 17 separate auctions completed in March 2002, unfortunately before the steep price increase.

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battle royal

m22au