Central Banks

Gold Will Get The Last Laugh On Central Banks

by Stephen Leeb, Forbes  |  published on April 18, 2013

Intense recent selling of gold and other precious metals resulted from a confluence of factors. Gold plunged 10% Monday, ending the session at about $1,350—down nearly 30% (and more than $500) from its highs, to its lowest level in more than two years.

Europe launched the rout by pressuring Cyprus last week to sell the bulk of its gold reserves to help repay €9 billion in European Central Bank emergency aid. Alas, the markets see the Mediterranean island as a model for future bailouts. The ECB’s eagerness to force the sale of gold reserves to cover soaring bail-out costs eliminated its role as a currency—at least for now.

Fact is, gold has acted strangely since the January 2013 release of the proposed Basel 3 liquidity regulations. These outlined assets that banks could count as liquid should world markets experience a repeat of 2008. Gold was conspicuously missing from the Basel 3 liquidity list, despite its stellar 2008 performance. Included in its stead sat such nonstarters as equities and low-rated bonds. Clearly the Bank for International Settlements—aka the bank of all banks—wished to telegraph the message that neither governments nor bankers should consider gold a currency.

When Japan stepped up with quantitative easing roughly three times larger than that of the U.S., and gold held steady. When Nicosia bowed to the EU and literally confiscated money from individual bank accounts—at least for a few days—gold also stayed put.

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