Gold Forecaster - Global Watch

By: Julian D. W. Phillips | Fri, Jun 29, 2007
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Gold sales - The reasoning behind Switzerland's policy decision.
The classic question has to be asked again, what is the price of gold? If we answer $xxx, then we have to ask the next question, what is the price of a $?

Is the $ so reliable a store of value that it can be used as a measure of gold? This questions the very foundation of the paper currency system. Can one trust the $ or even the international monetary system? It's all a question of degree.

So why sell gold, or more pertinently, why sell a little gold and retain sufficient for bad times? It is to ensure the retention of value in the overall portfolio; it is not the getting rid of the gold content therein.

Clearly, Switzerland with its constantly sound position as bankers to the wealthy of Europe and its dependence on the banking industry, has a vested interest in a mix of global paper currencies more so than those nations that have an unsound Balance of Payments, smaller reserves and face greater economic risks in the global economy [Other countries with current account deficits include Australia, New Zealand, Britain, France, Italy, Greece, Spain, Czech Republic, Poland, India, Pakistan, Colombia, Mexico, Hungary, Turkey, South Africa and others].

The big question is will gold have a greater real value in times of distress than yield earning national currencies? In the last world war, what value did the Deutschmark or the U.S.$ have internationally [remember forgery is one of the acceptable weapons of war]? And what value did gold have? - No contest.

With economic power shifting Eastwards and the Asian nations growing away from their dependence on the U.S. economy, inevitably reserve currency dependence such as we are used to with the $, is changing, is fragmenting with other currencies coming onto the scene and with national interests clashing and exerting pressure on the different important global currencies. Should these pressures grow beyond a certain almost indefinable point, then paper currencies will not garner the same level of confidence as they do now, and the unquestionable international reliability of gold as a measure of value will ascend above paper money.

Prime Minister Brown of the U.K. went the way Switzerland is, again, going to go in 1998, looking for a more profitable content [?] to the U.K.'s gold and foreign exchange reserves and paid a heavy price that is growing as the gold price rises. Did he act for political reasons in support of the € and the more controllable paper currency system? We believe Switzerland may be following the same line of reasoning as Brown did. After all, if we measured the proceeds achieved from the last sale and the total value of those plus the interest thereon, what would the shortfall against today's value of that gold?

So the mix of foreign exchange and gold reserves is essentially a gamble on the future.

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Julian  D. W. Phillips

Author: Julian D. W. Phillips

Julian D. W. Phillips
Gold Forecaster

Julian D. W. Phillips

"Global Watch: The Gold Forecaster" covers the global gold market. It specializes in Central Bank Sales and details, the Indian Bullion market [supported by a leading Indian Bullion professional], the South African markets [+ Gold shares shares] plus the currencies of gold producers [ Euro, U.S. $, Yen, C$, A$, and the South African Rand]. Its aim is to synthesise all the influential gold price factors across the globe, so as to truly understand the global reasons behind the gold price.

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