Central bank gold buying

Cutting spending, hiking taxes, and no qualms about buying gold…

Gold up on central bank buying talk but outlook weak

By Frank Tang and Amanda Cooper

Three weeks of upbeat U.S. data have made investors more confident about the economy and less eager to hold gold as insurance against another slowdown. The resulting steep rise in benchmark 10-year U.S. Treasury yields has weighed on gold.

Central banks have also reportedly been active buyers of gold in recent weeks, having bought as much as 4 metric tons of metal, according to an industry source and theFinancial Times on Friday.

They were net buyers of gold last year for a second straight year with a 439.7 tonnes purchase in 2011. In the two decades prior to 2010, central banks as a group had consistently been net sellers of gold. Analysts said that talk of official-sector gold buying should bolster investor confidence as central banks tend to be very long-term owners of the precious metal.

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30 Responses to Central bank gold buying

  1. Vincent Cate says:

    Warren, I am on Anguilla, next island East of you. I am making gold coins (see http://gold.ai) from scrap gold (cash for gold) here. I can give you a good deal on some gold coins if you are interested.

    Gold seems to be a tangible investment that does well when the central bank holds interest rates below the inflation rate. Bernanke has told us he will hold rates near 0% till the end of 2014. Then they tend to raise rates is little steps, so it could be years more before they get the interest rate above the inflation rate. So I think gold will be good for many years to come.

    Reply

    WARREN MOSLER Reply:

    I’ll be there in two weeks. how much are you asking for your gold?

    Reply

    Vincent Cate Reply:

    @WARREN MOSLER,

    It is supply/demand situation mostly. I am getting 20% over spot for single coins (1/10th oz) but for larger orders or standby orders I can do 5% over spot.

    At least let me take you to lunch or dinner when you are here. My number is 581 5398. My email is vince and last name at gmail.com.

    Reply

  2. Vincent Cate says:

    The thing that having a delay between printing money and inflation proves is that the standard MMT idea of “as long as the inflation rate is low we can make more money” is not correct. If there is a 4 year delay and you are just looking at the current inflation rate then things will get messed up.

    I don’t really like counting bonds as money but that graph really makes it look like gold views bonds as money. So now I like the idea that bonds slow the velocity of money. The problem I am trying to solve is that everywhere I can find if they monetize a large portion of the debt then they get inflation. So the MMT idea that “bonds are money so making new money to exchange for bonds does not matter” does not fit with history. But if you add in that bonds slow the velocity of money then switching new money for bonds can increase the velocity of money and get the price inflation that we see with monetization.

    If I understood the “pure inflation” paper they just count as pure inflation times when all prices go up together. This is of course a smaller number. Does not seem useful to me.

    Reply

    WARREN MOSLER Reply:

    the delay you are talking about is mythical. there is no causation. lending is not reserve constrained.
    have you read the 7 deadly innocent frauds? the currency itself is a simple public monopoly

    bonds don’t slow the velocity. yes, it does fit with history for floating fx and non convertible currency.

    Reply

    WARREN MOSLER Reply:

    show me where I said ‘we can make more money’
    you’re making this stuff up
    there is no ‘delay’- it’s mythical

    Reply

    Vincent Cate Reply:

    @WARREN MOSLER,

    “there is no ‘delay’- it’s mythical”

    Let me quote from you:
    “Seems low interest rates aren’t all the tool they’re cracked up to be?
    But they’ve only been low for a bit over 3 years.
    Monetary policy works with a lag and all that.”

    Was that “works with a lag” sarcasm?

    http://moslereconomics.com/2012/03/23/new-home-sales-unexpectedly-slip-1-6-in-february-2/

    Reply

    WARREN MOSLER Reply:

    totally!!!!

    Unforgiven Reply:

    @Vincent Cate,

    The tip-off was:

    “Much like Japan”

  3. Vincent Cate says:

    You have to understand that there are only two currencies that are not being printed like crazy. Supply and demand means that these two currencies will increase in value relative to all the paper currencies that are being printed like crazy. Gold and Silver have been money for 5,000 years. The average paper currency last 27 years.

    Reply

    Art Patten Reply:

    @Vincent Cate,

    Can you clarify your measure(s) of “printing like crazy”?

    And source the 27 year figure?

    Thanks!

    Reply

    Vincent Cate Reply:

    @Art Patten,

    I think increasing the base money supply by more than 20% per year counts as “printing money like crazy”.

    I have seen the 27 years several places, like the following URL.
    http://georgewashington2.blogspot.com/2011/08/average-life-expectancy-for-fiat.html

    I think most people just don’t understand the delay between printing money and price inflation. Gold and oil seem to have less delay than other prices.
    http://pair.offshore.ai/38yearcycle/#delay

    Reply

    WARREN MOSLER Reply:

    and some prices never catch up…

    Vincent Cate Reply:

    What prices never catch up?

    WARREN MOSLER Reply:

    specific i phone models
    value of used houses (ex land)
    real wages
    all of my tangible investments ;(
    etc.

    Art Patten Reply:

    @Vincent Cate,

    “it is clear to anyone paying attention that the monetary system is irretrievably broken and will fail.”

    That’s hyperbole, not sober reasoning. And the DollarDaze.org paragraph that follows it tells you pretty much all you need to know. I’m administering a basic statistics exam at the moment, and my students would fail if they drew the same inferences from the evidence outlined. And yes, policy actions often take effect with lags (and plenty of uncertainty), but what does that prove?

    I do think the gold:UST debt graph on your site is worth discussion. The natural reaction is to think that debt=>inflation, but (referring back to my stat students) assuming away lurking variables can be hazardous to your credibility. Consider that other data, such as the rate of change in median incomes in countries such as China and India, have also been closely correlated with the change in the nominal price of gold. Net USG deficits (and certain unconventional Fed operations, but not QE in general) add to nominal USD incomes, so countries with fixed, pegged, or otherwise managed exchange rates will see similar effects. And if those same countries have plenty of upside for nominal incomes, relatively poor social safety nets, and strong cultural traditions of owning precious metals…what’s likely to happen to PM prices? Meanwhile, besides similar global income effects (primarily higher volatility) in many tradeable goods, overall price levels seem pretty tame (my personal experience).

    On a side note, google Reis+Watson+pure+inflation. Conventional price indices might overstate actual inflation by some 80%…!

  4. Ryan says:

    The profession of the 21st century? Gold Prospector.

    Reply

  5. Unforgiven says:

    I think they need it on the circuit boards for the dedicated systems that calculate overdraft fees.

    Reply

  6. John Zelnicker says:

    So the central banks have been net sellers prior to the run-up in gold prices over the last few years and now they have become net buyers. Sell low and buy high! Smart?!?

    So, Warren, if the central banks are exchanging their currency for gold, what is the effect on NFA’s, if any? It seems the central banks are putting newly created money in the economy and taking gold in exchange.

    I’ve only been studying you and Wray and Mitchell for about a year, so I’m not fully up on all the ramifications and would appreciate your help.

    Reply

    WARREN MOSLER Reply:

    large bid/offer spread when you’re a cb ;)

    buying gold adds nfa to the economy

    Reply

    John Zelnicker Reply:

    @WARREN MOSLER,
    Thank you. That was my understanding.

    Reply

    SethM Reply:

    @WARREN MOSLER, can you elaborate on that? The purchase of gold would operate the same as any other dollar denominated commodity correct?

    Reply

    WARREN MOSLER Reply:

    i think so but i don’t know what you mean by dollar denominated commodity

    roger erickson Reply:

    @WARREN MOSLER,

    > buying gold adds nfa to the economy

    Depends on whose selling, and who’s economy you’re talking about.

    Reply

    John O'Connell Reply:

    @John Zelnicker,

    “Sell low and buy high! Smart?!?”

    Yes, this is the final signal of the end of the gold bubble.

    Reply

  7. Tom Hickey says:

    Is the purpose to drive down the fx rate to improve export position? “Exporting our way out of this hole” seems to be the current fad.

    Reply

    WARREN MOSLER Reply:

    hard to say but doesn’t seem the bank of greece would do that?

    Reply

  8. walter says:

    Anybody knows which CBs are buying?
    Before it was mainly Russia, China, India etc

    Reply

    roger erickson Reply:

    @walter,

    If it’s primarily euro-zone CBs, it’s a sign they’re preparing in case they have to get out.

    Any way to find out which CBs are buying the most?

    Reply

  9. Gary says:

    I wonder if they are planning gold standard again…

    Reply

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