The RBA and gold

Discussion in 'Gold' started by mmm....shiney!, Aug 20, 2020.

  1. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    This is a mildly amusing discourse from the recent Standing Committee on Economics:

    Deputy Chair Dr Andrew Leigh, ALP Member for Fenner:
    I want to conclude with a final question about what I think must rank as the worst market decision in Reserve Bank history: the decision in 1997 to sell 167 tonnes of gold when the world gold price was US$400 an ounce. The gold price is now about five times as high, around $2,000 an ounce. So, had Australia held onto that gold, it would be worth about US$9 billion more now than it was back then. Do you acknowledge that, in retrospect, that was a lousy decision? What will guide you in future as to the Reserve Bank's decision to buy or sell gold?

    RBA Deputy Governor Guy Debelle: While your price calculations are completely correct, there a couple of points I'd make. The proceeds from that sale generated returns subsequently. You're correct that if we sold it now it would be at a higher price, but in the meantime those proceeds allowed us to invest in US treasuries, which earned a rate of return—unlike gold, which earned a zero return. So we earned interest income in the intervening 20-odd years. That also has allowed us to pay higher dividends to the government. So one way you could think about this is that the result of the proceeds of the sale but also the interest income we've earned on those alternative assets that we've held. The dividends we paid to the government allowed them to do whatever they were going to do without having to borrow at a rate of around five or six per cent. I leave the compounding of that to you. But when you do that calculation the decision is not quite so dramatic as the way you just framed it.

    Dr Leigh: Do I take it there are no lessons that the Reserve Bank has drawn from that episode, then?

    Guy Debelle: The idea is always to sell an asset at its highest price. That is indeed a good thing to try to aim for. I think trying to predict the future of gold prices is difficult. It may have been a more sensible decision to turn around and take all those proceeds and invest them in Apple shares. We possibly would have earned an even higher rate of return. My point there is that the future is indeed uncertain, particularly future asset price movements, and hindsight is always the greatest investor. That is one lesson that one can always draw from such calculations.

    RBA Governor Philip Lowe: Perhaps I could make one final point: the Reserve Bank is not an investment bank. We don't hold a portfolio of assets to try and make the highest return, and we're not speculating on the prices of assets. We're holding these assets in the national interest, and the judgement we made back in the 1990s was that holding large stocks of gold in our vaults was probably not in the national interest. We're better off converting those gold holdings to foreign currency, because we need foreign currency for policy purposes: occasionally intervening in the foreign exchange market in the national interest—not very often, but sometimes we want the capability to do that—and generating a flow of income to the government, which holding US Treasuries, as Guy said, has done. So from the point of view of maximising the value of our assets, if that were our objective, I accept your criticism, but, from a public policy perspective, I think it was the right decision.

    Chair Tim Wilson, Liberal Member for Goldstein: Thank you, Deputy Chair. I take it you purchased gold in 1997 and you have held onto it dutifully thereafter because you think it's the right strategy. Just for Shane Wright at The Sydney Morning Herald, I need to clarify they were dishes in the drying rack.

    :p

    https://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;db=COMMITTEES;id=committees/commrep/868db039-2384-4ce9-a502-1354709677d2/0001;query=Id:"committees/commrep/868db039-2384-4ce9-a502-1354709677d2/0000"
     
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  2. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    And if dishes and drying racks pique your interest:

    "The dishes in the drying rack do not exist. Socially, I mean. They are placed in the rack and then forgotten.

    In most households, they would be remembered as soon as a new set of dishes needed to be dried, or one of them was needed for a new recipe. In my house, however, their cessation of existence is literal. I put them in the drying rack and they no longer exist. Nor, in fact, does the drying rack. Just look at it from the right angle and you will notice Nothing.

    I would be running out of dishes rapidly, except for the fact that new dishes keep appearing in my cabinets every week. Each of which looks suspiciously familiar, like a dish I've seen somewhere before, only I can't exactly put my finger on it. How odd.

    I sometimes throw garbage into the drying rack, just to get rid of it in an environmentally-friendly way. On a related note, sometimes my neighbor discovers that someone completely has filled his garbage can before he can even put in one bag. he can't figure out how this happens, because he keeps the can in the garage. How odd.

    I didn't exactly design the drying rack this way. I mean, of all the things to enchant, a drying rack for dishes has to be the most banal. Who gives a toss about a drying rack? Which is why I used it for practice. For the first time. Ever.

    I'd say it turned out well, if not necessarily safe or useful. Word of advice: Don't touch the drying rack. Don't put anything in the drying rack. Don't get near the drying rack. Any object or body part of yours that touches the drying rack can only be saved if you concentrate on it and will it into existence. You have to keep telling yourself, "my hands exist, my hands exist, these are my hands, I have hands", or whatever object is in danger. If you take your eyes off of it even for a moment, you will forget about it and it will be gone.

    Speaking of which, look at these neat hands I have. Nice and thin and long, just the way I like. They're not exactly my hands. I'm not sure who they belong to. Nor do I remember what happened to my old hands. But hey, I've got these now, so..."


    https://everything2.com/title/The+dishes+in+the+drying+rack+do+not+exist
     
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  3. Karoi

    Karoi Active Member

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    Both amusing and sad!

    If I remember correctly, the poms did an even worse job when they auctioned off their ~400 tons.
     
  4. bron.suchecki

    bron.suchecki Well-Known Member

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    Amazing that Debelle can say "unlike gold, which earned a zero return" when in the RBA's own annual reports for decades they report how much money they have made from leasing out their gold.
     
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  5. Golden Stash

    Golden Stash Active Member Silver Stacker

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    Why would s someone lease gold?
     
  6. LiverBird

    LiverBird Well-Known Member Silver Stacker

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    To make $. The banks sell the gold to another party at a higher price for the duration of the lease.
     
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  7. bron.suchecki

    bron.suchecki Well-Known Member

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    Any business that has gold inventory can lease gold instead of borrowing cash and buying gold and then having to hedge it with futures
     
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  8. Markco2

    Markco2 Active Member Silver Stacker

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    With all due respect Bron, it is the people's gold, not the RBA's.
     
  9. bron.suchecki

    bron.suchecki Well-Known Member

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    I believe both of my posts were just factual statements without any value judgement pro or anti RBA holding or leasing gold.
     
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  10. leo25

    leo25 Well-Known Member Silver Stacker

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    The question is not why someone would lease gold, the question is why the RBA would. Clearly earning or borrowing a relatively small amount of money is of no importance to a central bank.
     
  11. leo25

    leo25 Well-Known Member Silver Stacker

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    Perpetually intervening in the foreign exchange market. Fixed it. ;)
     
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  12. Markco2

    Markco2 Active Member Silver Stacker

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    leo25, This may answer a few questions.



    Cheers Markco2
     
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  13. leo25

    leo25 Well-Known Member Silver Stacker

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    ^ Yea i think that's the best explanation so far, it's to facilitate fudged audits. Just more scams.
     
  14. Markco2

    Markco2 Active Member Silver Stacker

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    I wouldn't say it's fudged audits exactly.
    However, the bigger issue is how many times is the same gold being leased in smaller quantities to other participants? Now, if John Adams is correct, the multiplier effect on allocated and unallocated would be pretty damning on these type of arrangements.

    Cheers Markco2
     
  15. Oddjob

    Oddjob Well-Known Member Silver Stacker

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  16. Oddjob

    Oddjob Well-Known Member Silver Stacker

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    It appears (and open to hear from accounting experts on this) that accounting rules around leases changed around 2016 that allow an a lessee to class an asset as theirs on balance sheet (with corresponding liability entry) when there appears to be no obligation to purchase the asset at the end of the lease ie like with a finance lease.

    I'm not sure it fudged audits, more so that the major bullion players got the accounting rules changed to suit their needs.
     
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