Central Banks in Scramble to Buy Gold

Central banks around the world are buying gold to diversify the foreign exchange reserves. They are scared of the dominoes falling. Europe will likely be the first domino to fall, then the US, and then Asia. All central bankers are Keynesians by their nature. They believe that government deficits overcome recessions. They create fiat money out-of-thin-air to buy mostly government bonds. But this increases the money supply (inflation) which normally leads to higher prices of goods. When goods prices rises massively there is societal discord and strife.

Central bankers dislike gold, but they hold it to preserve some figment of monetary legitimacy. They hold it like a housewife holds a toilet brush; with nose pinched and at arms length. It is a hated but necessary tool. That is why John Maynard Keynes called gold “a barbarous relic”. Gold can’t created at the whim of some anti-capitalist central banker to fund the deficits of bankrupt socialist governments.

http://blogs.wsj.com/marketbeat/2011/11/17/central-banks-in-scramble-to-buy-g…

Some central bankers are positioning their country’s for the post-US-dollar-as-the-world’s-reserve-currency world. When the music stops they don’t want to be holding a central bank full of US I.O.U.s.

You should have 20-30% of your net worth in physical precious metal coins. They will hold their purchasing power through crisis.

There will be a time many years from now when you should sell some to pay off your mortgage. When central bankers cease to inflate their money supplies for real, then a depression will ensue that will contract the money supply (deflation). All prices will fall. The purchasing power of the domestic will rise and fixed rate loans will be harder to pay back. Think of the US deflationary depression in 1930-1933.

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Published in: on November 17, 2011 at 2:06 pm  Leave a Comment  

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