Russia’s gold position expands to new highs
Historically, gold is a safe haven for investors when markets are tumultuous. The general reasons are well-known: Central Banks keep gold because it’s a way of defending themselves against a new crisis. That’s the main reason why investors like the yellow precious metal. Central Banks keep on a massive part of their reserves to buy gold. For example: the United States turned their reserves into gold for about 75%. Also the IMF is a ‘gold bug’: it takes the third place of gold reserves. If we have a look to the definite numbers, we see a huge expand of China and Russia. Germany takes the second place, but Russia is increasing its gold reserve rapidly. Spoken, Italy and France are having more gold than China and Russia, but in the short-term I guess that they are passed by Russia. Below you can find an excellent graph, which shows you a good idea of the gold reserves. Although we can see that there are more critical views about the huge balances of Central Banks. They suggest that the economic crisis is almost solved, certainly in the United States where the Fed plans three rate hikes this year and full-employment is reached (a 5%-rate of unemployment). The latest job report assumes that there is a consistent strong growth in the world’s biggest economy. So the enormous balance sheet of the Fed has to be decreased. The Fed’s balance sheet hits the highest level ever (more than 3 trillion dollars). The problem is that the Fed has a lot of gold and bonds in its portfolio and the bubble in the bond market is huge and not sustainable for the future (the last months there were complete sells in the bond market and yield exploded at a very fast pace. Also gold is a risk factor for the Fed: this means that they can’t sell gold in great quantities. If they do so, the gold market is disorganized and the gold price can fall to very low levels. Some people believe that the gold market is manipulated (gold may not hit high levels because it undermines the confidence in the economic system).
Why couldn’t the IMF sell gold in great quantities?If the IMF wants to sell quantities of gold, they can’t do that in great quantities. The reasons why:
- They have a mandatory quota. Members of the IMF have to buy 25% of the contribution with physic gold.
- Currency market: if a country wants to change currencies, they have to sell gold to the IMF.
- In the past members who wanted to lend money, had to pay physic gold as interest.
- If the IMF wants to sell gold, it needs a ‘go’ of the members of the Executive Board.