The World Gold Council 3rd Quarter Report

Friday, 26 October 2012
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Published in From The CEO

As the price of gold fluctuates, it’s useful to step back occasionallyand look at the big picture with respect to its price movement and how supplies are distributed throughout the central banks of the world.  We need to remind ourselves that paper money remains plentiful in our era of monetary easing, and that gold remains rare.  As financial writer Philip Coggan points out, all the gold that’s ever been mined in the world can fill a cube with sides the size of a tennis court.

A good way to take this larger perspective just now is to review The World Gold Council’s 3rd Quarter Report.  The report is revealing, and makes it clear that central bank activity in the United States and Europe are fueling demand for the yellow metal.

Fiscal-Cliff

It’s also sobering to realize that gold returned 11.1% in the third quarter and, year to date, is up 16%.  And, as 24/7wallst.com observes from the WGC report, “gold still outperformed almost all the major equity markets in the largest gold-holding nations in 2012.”  It’s striking too that no longer is gold merely a financial hedge: it serves as protection against a world imperative to debase currency.  Since bonds now pay historically low rates, and investors are increasingly fearful of volatility in stocks, gold is more important than ever as a safe haven.

Again though, while concern over inflation through monetary easing is still the major factor driving the price of gold, central bank purchases play a greater role than in the past.  In fact it’s safe to say that, based on the numbers, gold is becoming the world’s largest reserve currency. In looking at the WGC report’s list of the ten largest nations that control the world’s gold, some of the countries like the US (1), China (5), Japan (8) and Russia (7) are predictable.  Still there are a few surprises.  The Netherlands, with gold reserves of 612.5 metric tons, ranks number 9 on the list.  Switzerland ranks number 6.  While it’s understandable that the country that plays largest private banker to the world would want to stock up on gold, Switzerland’s relatively high rank is amazing when you consider the country ranks 95th in world population at 7.9 million.

An amazing surprise is Italy as number 3 with 2,451 metric tons.  As observed in 24/7wallst.com, the bitter irony for this nation is that, even with its abysmal economy, it can’t afford to sell off its gold to improve conditions, because it would have no cushion if the euro failed.

What the officials of the central banks of the world understand is what bond king, Bill Gross of PIMCO, has been warning us about all along.  When hard assets rise in price through inflation, nations that store large amounts of gold will be much better off.

Which brings us back to you.  Armed with the knowledge of what central banks are doing, doesn’t it make sense to become your own central bank?  On the one hand governments create inflation through monetary easing; on the other hand they look to gold for a monetary cushion.  What are you doing for your own cushion?  With its current correction, gold is providing you with an excellent opportunity to accumulate.  At gold’s current price, can you really afford to ignore this opportunity?

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Trevor Gerszt

Trevor Gerszt has been passionate about gold since childhood. Growing up in South Africa, the world’s second largest gold producer, Gerszt spent his youth collecting gold coins. Surrounded by a family of experienced coin collectors, he gained valuable insight about the precious metal.

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