Gold price - back up the truck?

Discussion in 'Markets & Economies' started by GreatSouthernTime, Mar 5, 2021.

  1. alor

    alor Well-Known Member Silver Stacker

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  2. mmm....shiney!

    mmm....shiney! Administrator Staff Member Silver Stacker

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    The world's top players are not heavily investing in gold. They hold legacy positions if they hold any at all.

    Investors in precious metals should be guided by the fundamentals of the market. As such it's probably somewhat useful to examine the gold transactions of the world's governments in an attempt to get some insight into the place of gold in a retail investor's portfolio. In order to do so it's important to distinguish between the activities of the advanced economic countries and those of the less advanced economic countries because the importance of holding gold in the vaults of CBs differs between the two groups.

    Governments of nations such as the US, UK, Australia, NZ etc are not adding to their gold reserves and have not done so for decades. The reason for this is that the economies of these countries are well-regarded as safe places for foreign investment due to political stability, economic health, trading status, the rule of law etc. Germany has been been selling it's gold reserves year-on-year for at least the last 2 decades. Canada ended its gold sale program in 2003 and AFAIK doesn't hold any at all. Switzerland has been been selling, Italy hasn't added to it's stock, Japan bought gold in 2021 as a result of an off-market transaction with the Ministry of Finance so therefore it hasn't added anything to its stockpile, France has been a net seller by far adding a small amount to its reserves in the last couple of years only. So apart from France, none of the governments of the world's wealthiest economies have been buying gold. Because they don't need it.

    That leaves the other sector - those economies where confidence in foreign investment is either less secure or where the reputation of a nation hasn't yet been built. And this is where nations such as Russia, China, Turkey, Kazakhstan etc all feature. Gold still plays an integral part in their balance sheet as it hedges their foreign reserves, provides liquidity in the banking system and is used as a tool to manage the value of the domestic currency in the forex markets. Apart from the third function, there is less need for gold to provide a hedge against foreign reserves and no need for gold to provide liquidity in the economies of the wealthy countries because the fiat currencies of those nations is widely accepted internationally and the BaselIII regulatory frameworks around capital and liquidity ratios mean that the banking systems of those nations are largely immune to any risk or contagion.

    As investors we can probably model an investment portfolio after the governments of the less advanced economic countries as opposed to the 'top players" because we do not have a monopoly over the issuance of fiat nor do we have a robust economic reputation that instills confidence in investors ie banks. Unlike the governments of Oz or the US, we need to possess assets and earn revenue in order to attract investments ie loans and it could be argued that a small portion of gold in a portfolio could go some way to meeting that requirement.

    Not in any quantity yet. But eventually BTC will be held on the balance sheets of less economically wealthy nations for the same reason they may hold gold.
     
    Last edited: Feb 23, 2022
  3. betterinvestmentthanshare

    betterinvestmentthanshare Active Member

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    Very entertaining
    Everyone is an expert, everybody wants to rule the world.
    I love this forum
     
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  4. heartastack

    heartastack Well-Known Member Silver Stacker

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    I noticed those were the countries that haven't experienced hard times in a while. So you could argue it's great strategy or you could argue they're driving through the rear view mirror.
     
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  5. mmm....shiney!

    mmm....shiney! Administrator Staff Member Silver Stacker

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    Or it’s possibly neither.

    They’re all stable, rich, economically advanced countries with a sound rule of law. The outcome of which means that even during periods of turmoil, the citizens of those nations are able to satisfy their immediate needs.
     
  6. alor

    alor Well-Known Member Silver Stacker

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    my package got delay for 2 and half weeks. Fedex KILAN :mad:
    unreliable... got to be more prepared locally next time, always there is the next one :D
    Overseas prices seems to be higher recently too
     

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