Bernanke Confirms Bias Towards Easing – A “Jackson” Hole in One for Gold & Silver Today

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Gold and silver prices both advanced by two and four per cent respectively as Federal Reserve chairman Ben Bernanke delivered his eagerly-awaited policy statement at Jackson Hole today that fell short of delivering QE3 money printing but strongly supported the use of the policy when it was needed. Precious metals took this as a signal that the US dollar is on a down-slope.

Mr Bernanke said that past QE policy had been successful and that this is being held in reserve. He would not rule out further bond purchases to boost growth and reduce unemployment, which he called a “grave concern.”

“The costs of nontraditional policies, when considered carefully, appear manageable, implying that we should not rule out the further use of such policies if economic conditions warrant,” Bernanke 

Marc Faber : Ben Bernanke says well the market occasionally fails and so on and so forth but at no time was it mentioned that actually the failure was not the free market the failure was that the free market was not allowed to operate because under the free market system , Mexico would have gone bankrupt in 1994 , LTCM in 1998 , we wouldn’t have because of ultra expendituary monetary policies the housing bubble and the housing bust and the FED encouraging people to take out sub-prime loans and so forth and so on , so we had a series of interventions that led to the crisis , now the FED and other central banks just turn around and tell you ‘well if we had not eased massively after 2007 the crisis would be much worse’ what they are not telling you is that they caused the crisis – in Bloomberg Radio Interview HERE

Is Central Bank Buying Just a Driving Force Behind Gold or Much More?!

by Julian D.W. Phillips

In the same year we saw the arrival of emerging nation’s central banks into the gold market as buyers. Since then, they’ve set a pattern of buying gold that continues as a driving force behind the gold price even today. In this article, we look at these events and other monetary developments in the gold market to see what to expect in the days and months ahead.

Which Central Banks are Buying Gold and Why?

As you have seen in our newsletter in the Table of Central Banks buying and selling gold, it is the emerging nation’s central banks whose reserves have been growing strongly, that have led the way in buying gold for their reserves. Their aim is to diversify away from the U.S. dollar and other leading world currencies and to buy gold as a counter weight to those currencies.

These central banks are based in Asia, the Middle East, South America, etc. They include:

Russia – Bangladesh – Philippines – Saudi Arabia – Thailand – Belarus – Venezuela – India – Sri Lanka – Mauritius – Mexico – Bolivia – Colombia – South Korea – Turkey – Kazakhstan – Tajikistan – Serbia – Ukraine – Mongolia – Malta – Greece – Argentina.

The underlying reason why they’re buying and why the European signatories to the Central Bank Gold Agreement stopped selling is because they all consider gold to be an important Reserve Asset and as the head of the Bundesbank put it, “gold is a counter to the swings of the dollar”. Neatly put, but isn’t there more to this than simply countering the swings of the dollar?

Since gold was at $300 an ounce in 1979 right through to 2005 gold has been at that level or higher. Now it is at $1,660, five and a half times higher, and the dollar is not five and a half times lower than other currencies. Gold has risen in all currencies including the euro which was well below €300 to an ounce of gold and is now at €1,321 more than four times higher than then.

Clearly, gold adds further ingredients to national reserves as these numbers demonstrate in part. The emerging world is as aware of gold’s value in their reserves as are the developed world’s central banks and are doing something about it before there are potentially devastating developments in the global monetary system.

Why Central Banks of the U.S., Germany, France and Italy Hold 70%+ of Their Reserves in Gold

Having stated that they were sellers of gold from 1999 onwards through until now, Europe’s signatory central banks to the CBGA gave the impression before 1999 that their gold holding weighed heavily above the gold market. This combined with accelerated mining of gold as the price was dropping forced the gold price down and pushed the developed world to more and more dependence of the dollar then the euro. But in reality central banks were not trying to get rid of their gold holdings. Some aimed at selling 20% of their reserves in total, while others like Germany, did not sell any of their gold, despite being signatories to the agreement.  Some like the U.K. and Switzerland appeared to gullibly sell half of their reserves.

Then in 2009 all the signatories stopped selling except for small amounts for the minting of gold coins. This left the holding of European banks at these levels:

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For such an archaic reserve asset, it is doing very well in terms of its price moves. But the governments of the developed world knew that if their 40-year long experiment with un-backed paper money were to go wrong then gold could come to their rescue and, my goodness, it has!

The now incumbent money managers may feel surprised at the way we have described currencies, i.e. as an experiment, but since Nixon cut the link of gold to currencies back in 1971, and experiment is what we’ve had. Now, the money experts and leaders of the world –looking at all the ways in which governments across the developed world have abused paper money and particularly national debt levels— can see the sinking level of confidence in such money both inside and outside the developed world. What can pull them from the brink of disaster if confidence in the two leading developed world currencies (and leading reserve currencies) collapses? What can pull the world’s leading commercial banks –particularly those fused at the hip to government in their asset portfolios— from collapse?

Having watched the credit crunch morph into the Eurozone debt crisis and potentially return across the Atlantic by year’s end to see the U.S. once again fighting over-indebtedness, developed world central and commercial banks realize that whatever their dislike of the discipline of gold and its unmanageability, it will allow them to harness a confidence that currencies are failing to do currently. Gold is also facilitating loans and liquidity that goes far beyond its price.

The structural benefits of gold are now showing through clearly in gold and the need to side-line it from the monetary system is proving a dangerous handicap for the monetary system. Hence, Basel III discussion taking place now, to be implemented from January 1st 2013.

In the 2nd Part of the Article, We Explore:

  • Basel III and its implications for gold and its price.
  • How gold is returning to the monetary system right now in the banking system.
  • Will the ‘powers-that-be’ continue to allow gold to be privately owned [including in gold ETFs.
  • How you can protect yourself against gold confiscation even if held in Switzerland or elsewhere.

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