RETIRE.FUND: Foreign exchange reserves

Showing posts with label Foreign exchange reserves. Show all posts

Thursday, February 18, 2010

IMF selling gold usually dampens demand, but this strategy may backfire bigtime.

The International Monetary Fund is again selling gold to bolster it's cash so as to be positioned to help (read bailout) more troubled economies, which seem to be propping up at present, all over Europe. When the IMF sells gold, it usually has a dampening affect on the price. Often, that is the real reason for selling in the first place. However, with China and India in the hunt for more gold reserves, the strategy is set to backfire.
Even though China has the 6th largest gold reserves in the world at this writing, it constitutes merely 1.5% of it's entire foreign reserves of over 2 $Trillion. Compare that to European countries like Germany who's gold reserves constitute over 60% of total foreign reserves. France= 61.5% etc etc.

China's gold reserves add up to a measly $29 per citizen, a paltry sum by the standards of developed countries. As China looks to diversify it's FR funds, gold will become a growing part of it's acquisitions. Even if China was to double it's gold reserves, that will only constitute 3% of total FR funds in it's huge and growing piggy bank.

This auction will be moved to the open market, however the IMF will honor bids from Central Banks and China will no doubt be a focal point. India may also look to bolster it's gold reserves, for the second time in 6 months, at this auction. They may even try to hide their intention using a surrogate possibly. Chinese investors will also play a role as their government is telling it's citizens to invest in the precious metal for their savings and as a hedge against inflation.

Gold as a hedge against inflation? Now there's a novel idea! However, there are smart people who believe that such sales are a drag on gold prices. They use history to bolster that argument.

“When the IMF sells, that’s bad news for gold,” said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois. “Gold goes lower because there’s more supply.”

In the past this has certainly been the case, however, that past did not include the Peoples Republic of China as a buyer, nor the largest democracy on earth (India). It did not include their citizens, 2.5 Billion in total, as individual investors in gold either. As these two behemoths grow their middle class, and then tell those people to invest in gold, well that changes the dynamic, forever, especially when the known gold reserves currently above ground can fit into a space the size of two Olympic swimming pools.

In a gold rush, that supply can get eaten up in a heartbeat! As Government after government print more fiat currency and pump it into their systems, the argument for gold may turn into the biggest gold rush in history.

There is a trend here that investors should not ignore. It's no secret that countries like China, India and others, as well as their citizens, are wanting to diversify their FR funds away from the U.S. dollar, the Yen and the Euro and gold is in their cross hairs. If you don't hold gold or gold stocks in your portfolio in the current environment, then you are not paying attention.

For a more informed opinion on these matters you should read this interview with John Embry, Chief Asset manager for Sprott Asset Management.

Put some gold in your portfolio, now, before the rush!!

Article: If China buys IMF Gold

Soros and Hedge funds betting on gold

Wednesday, November 4, 2009

India and China are buying up Gold at a record rate. This will no doubt affect your retirefund.

Image via Wikipedia

This week, India purchased 200 metric tons of gold from the IMF (International Monetary Fund). It amounted to half of all the gold the IMF placed for sale. India bought it to bolster it's foreign reserves account. China is strongly expected to buy up the other half. What does that tell us about gold prices and the decreasing value of the U.S. Dollar. Well, it tells us a lot, and many Americans are not going to like the answer.

The United States dollar has been the worlds reserve currency for the past 50 years, even before the gold standard was dropped. That gold standard, or some form of it, is creeping back into the international psyche as governments and individual investors buy up gold and gold miners in record numbers. There is a very basic, common sense reason for this. The United States dollar is headed lower, maybe a lot lower. It has to. Here's why.

At the start of the George W. Bush administration, the U.S. economy was in the black. Bush was handed a "surplus", the first one in 30 years. During the next 8 years of his administration, the U.S. went into debt to the tune of $10 Trillion by the time Obama took office. In the midst of two wars being fought on two different fronts, W. did what no other U.S. president had ever done at such times of crisis. He cut taxes. Not only that, he did it twice. The result is the debt and deficits the United States have to this day and unless there is a sea change in spending and the tax regime, it will get a lot worse.

This year alone, the U.S. will add $2 Trillion more to their debt. If there are no changes, economists predict that by 2015, the United States will be $23 Trillion in debt. Even the powerful American economy can't take a hit like that. A devaluation in the dollar is probably one of the few ways the U.S. can pull itself out of this mess. In the mean time, other countries, and the citizens of other countries, looking for a better store of value, are turning to the one currency that has been in place for over 6,000 years. No fiat currency has ever replaced gold, although the USD tried very hard, becoming the reserve currency for the world and replacing the gold standard. That gold standard is creeping back, in some form, at this writing.

China has doubled it's gold reserves over the past few years. India just did the same and they both will no doubt continue to buy as their foreign exchange reserves shrink with the U.S. dollar. They want to hold value, not lose value! The Hong Kong government recently moved it's entire gold reserve to a domestic location from London where it was held. China is not only investing in gold, but it is telling it's citizens to do the same. India's citizens have long done this and are the biggest buyers of gold jewelry in the world.

As the U.S. dollar dives, it's stock market is gaining daily. After a recent pullback last week, the U.S. market is again going gang busters. It has to. As the dollar drops, people are investing in good companies as stores of value and their stocks are going up correspondingly, with the dollars demise.

Publicly traded Gold miners have a unique position in all of this. They are stocks and they produce pure gold, thereby gaining from both sides of this gold buying bull market.

Over 95 % of the worlds entire gold supply is now above ground. No wonder, after 6,000 years of mining. Canada, however, is one of the few countries with a number of producing gold mines.

Here are our top picks of these gold miners in order.

1. Apollo Gold Corp - U.S. company mining in Canada (APG-TSX or AGT-Amex)
2. Barrick Gold (ABX - TSX or NYSE)
3. Kinross Gold (KGC-NYSE)

If you don't already have gold in your portfolio, then I suggest you do so soon.

Previous articles:

1. An American Fox in Canada's gold hen house.
2. The argument for gold.

Other sources: Could Gold go to $5,000 per ounce?

Monday, June 15, 2009

Will King Dollar be dethroned? Not right now, however...

Image via Wikipedia

From Kudlow to Cramer, there is a hue and cry throughout the United States investment community (or most of it) for the propping up of King dollar. The King has reigned supreme for over 50 years as the most accepted currency worldwide, and a safe haven for value. Now, however, perception and reality maybe beginning to diverge.

Russia today went public expressing the benefits of a strong U.S. dollar, while quietly trying to divest what is left of their international reserves into other stores of value.

China, while using it's substantial foreign reserves (1.4 Trillion) to prop up it's own domestic economy, is also quietly seeking international input into developing an international currency or bank of currencies, possibly set by the world bank. Is there a Prince in waiting? The answer is no! At least not now!

The BP and the Euro have been trashed by their own economic mismanagement and the spillover from America. The Gold standard has been essentially abandoned over 40 years ago, and there is no other currency with the same acceptance level as the usd. China has it's currency directly tied to the usd (which causes all kinds of related problems), the Russian Ruble is, well, the Russian Ruble! The Japanese yen has had a severe case of the money flu for 10 years. India, Brazil, not even close! The renmimbi? Not hardly!

However, with the u.s. economy going 10.7 Trillion into debt by the end of this year, it's economy suffering from so many other ailments in housing, jobs, infrastructure and the big banks Derivatives debacle, we may be seeing the first serious cracks in the throne. Many money managers see serious inflation 2-3 years out. That can only mean more devaluation of King dollar.

Americans should be aware of a wake-up call that occurred this year. The members of the BRIC Countries (Brazil, Russia, India and China)held their first joint meeting as a group of rising economic powers. Can the King get hit by a BRIC?

How can this affect "your retirefund"?

That is between you and your financial adviser. Get good advice, make a plan, follow the plan. Putting U.S. dollars in your mattress is far and away, the worst plan you could have at this point, unless, of course, your mattress is the size of Philadelphia!

RETIRE.FUND