Central Banks and Gold
Most exporting nations accumulating foreign currency reserves are turning into sellers of dollars. This is either for strategic reasons, such as in the case of Russia and China, or because their commercial interests are becoming increasingly aligned with Sino-Russian trade policies. China, Russia, Japan and the Middle East are all future sellers of the dollar, and of the underlying US Treasuries and T-bills in their possession. All other central banks will also be aware of these developments by now, and should be re-examining their exposures accordingly.
The coming months will almost certainly see a further deterioration of the Eurozone’s survival prospects, and an objective analysis must embrace the consequences of its demise and that of the whole euro financial system. The only way capital flight within the system can be reconciled is by a systemic collapse. That puts the dollar and the euro—two major reserve currencies—on the ‘sell’ list of most central banks.
Together, they are the world’s reserve currency and the currency for the world’s next largest economic area. They account for 40% of the world’s GDP, the part that represents the world of yesterday. Therefore, a sea change is underway in nearly all central banks’ attitude to gold, if only because, other than yen, yuan, sterling and Swiss francs, what else is there?
Macleod discusses Russia; China; petrodollars—a threatened species; and goodbye to the euro and the Eurozone.