Wednesday, June 01, 2016

Emerging Markets Should Shift 
From Dollars Into Gold
FT article analyzes the case for gold in official reserves .. the article highlights the change happening in mainstream circles & official central bank reserves towards gold .. references the recent call by Kenneth Rogoff that emerging markets should shift a chunk of their official reserves away from dollars into gold .. "His reasoning is that emerging markets as a group are competing for rich-country bonds, which is driving the interest rates they receive exceptionally low. At the same time, rich-country governments are so heavily indebted they cannot increase the supply of IOUs significantly. So bond prices cannot be expected to appreciate much further. Gold, despite being in close-to fixed supply, does not suffer from this problem, because there is no upper limit on its price. Mr Rogoff also believes a case can be made that gold is 'an extremely low-risk asset' with average real returns comparable to very short-term debt. Emerging markets are, in fact, already beginning to take the message. Since 2010, central banks have been net buyers of gold. This reflects both a slowdown in sales by European central banks — which, incidentally, suggests a striking lack of confidence in their own monetary policies — and large purchases by emerging markets. From a systemic point of view, this is good news. It can help mitigate the squeeze arising from the global shortage of safe assets. The emerging markets’ diversification problem should lessen, because gold has a strong negative correlation with the dollar. And the appreciation of the gold price that would result from EM buying would also benefit many advanced countries because developed-world central-bank gold holdings are high."
LINK HERE to the article

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