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Let The Gold Buying Spree Begin.

This interesting article on Gold  was contributed by Money Morning. Click Here to Subscribe to their free newsletter.

Emerging Markets Preparing for Sound Money.

‘I need a dollar, dollar, a dollar is what I need,’

And so goes the current pop song.

Funnily enough, those lyrics were written while the American economy was enjoying its credit boom six years ago.

The dollar, buck, demand note, dead presidents club, the greenback, call it what you will. It’s the cash no one wants. In March this year, Ray Dalio founder of hedge fund Bridgewater Associates, said of the greenback, ‘It’s inevitable that the dollar’s role as the world’s currency will diminish from the dominant world currency to one of a few.’

The US Federal Reserve Bank is doing its best to destroy the value of America’s dollar. What are other countries doing to protect their currency reserves?

Let The Gold Buying Spree Begin.

Last year, media outlets like The Age, Reuters, and Financial Times reported the big gold purchases from China and India.

But they aren’t the only countries on a gold-buying spree.

Many ‘emerging market’ countries are stocking up on their gold reserves.

Russia’s bought more than 118,000 ounces this year, bringing its total gold reserves to 27.61 million ounces. Russia’s gold reserves are now worth USD$43.7 billion. Just under half the value of what Russia has in US Treasury bond holdings.

Venezuela, a country with gross domestic product (GDP) of USD$340 billion, has increased its gold holdings by 10 tonnes over the past two years. It now has a healthy USD$16.9 billion worth of gold stashed away.

The Wall Street Journal reports that,‘…emerging-market central banks are moving into the gold market as buyers because of a lack of options available to diversify their reserves…’The big education we got from the economic crisis is that you have to diversify. And now that we are in exceptional times, [a lot of] countries… don’t have that many choices,’ said market analyst Eija Salavirta of the Bank of Finland.

But it’s not a case of countries diversifying. Have a look at this.

Belarus’s gold reserves are 42% of its total ‘currency’ reserves. Up from 16% two years ago. Cyprus has grown its gold stash to 54%, 10% higher than 2009.

And tiny Venezuela’s stock pile of the shiny stuff is 62% of its total currency reserves.

So, the media has made a fuss over China’s big 400 tonne purchase of gold. But it only bumped up its gold reserves a trivial 1.57%. And India? Its gold pile is 8.37% of its total currency reserves.

Emerging markets aren’t just increasing their exposure to other assets. They’re preparing themselves for a return to sound monetary policies.

The beginning of the new gold standard

Greg Canavan, editor of Sound Money Sound Investments shared his thoughts on the Federal Reserve Bank’s influence over the price of money.

‘Taking the ability to create and set the price of money out of their hands would be a giant step forward in improving the economic system,’ he says.

‘Going back to a modern type of gold standard would signal a return to sound money principles.’

The problem is we can’t just return to a gold standard. Tying one currency to the value of a precious metal isn’t the answer.

We need a new, modern gold standard.

A sound monetary policy isn’t something that will happen overnight.

Greg believes the first step is ensuring ‘…the gold market …[is] a “free” market.’

Enabling central bankers to determine a currency’s worth has to end. The power to value or devalue a currency belongs to market forces.

Greg tells his readers:

‘… [in] a free gold market, central banks must stop inflating the money supplies by buying their government’s debt and print money to buy gold instead. Doing so over a few years would help set a stable free-market price of gold and provide them [the central banks] with a sound asset on their balance sheet.’

He adds:

‘National banknotes should promise to pay the bearer in gold. This way citizens have a recognised alternative to paper currency if they don’t like the way government [or] central banks [are] acting.

‘If inflationary policies were followed, people could take their notes to their bank and exchange it for gold. This would drain gold from the central bank and push its price up against the currency in question. It would therefore be a signal to central bankers to pull their heads in.’

Instead of being at the whim of central bankers, countries like Belarus and Venezuela are getting ready for the beginning of a sound global currency system.

Shae Smith.


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