onsdag 13 juli 2011

Kommer USA att sälja sin guldreserv?

Nedan är ett inlägg jag publicerat på RightSpeak, som handlar om huruvida USA kommer att sälja sin guldreserv (och om andra länder följer) för att tvinga investerarna tillbaks till aktiemarknaden.


After my several doom and gloom posts lately, tonight I'd like to focus on a possible solution to the crisis. No, really, it's not a solution - it's just something that governments may mistake for a solution and therefore they'll do it, even if it's not.

Dump the gold reserves.

You see, of all the approximately 165 000 tonnes of gold that has been mined, more than 30 000 are locked up in different countries gold reserves. With gold seemingly reaching new all time highs every week, this would be a great time to sell. Most countries of course do not have gold reserves so big that selling them would actually solve the economic crisis, but there is still reason to believe a coordinated effort to dump the gold price may be in the makings.

When people don't trust the stock market, they have a tendency to put their money in commodities instead. Well, bonds as well, but if they don't even trust bonds (see; all my posts about the eurozone crisis), then commodities are all that remains. Most of all, investors are drawn to precious metals such as gold and to a lesser extent silver.

This leads to less money available on the stock market, which drags it down and with it goes economic growth and recovery. So what is a government official to do?

Well, they can always regulate, like I wrote about last week. But if that doesn't work, they can always dump the price of gold by selling all their reserves at the same time, causing investors to flee gold and forcing them back either into the stock or the bond market (most likely both).

Of course, this would have to be a co-ordinated effort. If only one country does it, it won't work. But if the EU, the US and a few other countries got together, it could.

Is this likely to happen then? Well first, let's accept the fact that the US government is trying to stop people from fleeing to commodities. Why else would they regulate it? Let's also accept that no country on earth are really fond of people buying commodities as opposed to shares and bonds. And finally, let's accept that international co-operation is at an (probably) all-time high. So why not co-operate to make investors go back to the stock market?

For a country that has a harder and harder time finding people willing to lend it money, destroying the alternative to doing must seem like a really nice way out. And right now, there are a lot of countries in that seat.

Plus, what do countries really have their gold reserves for? They're a left-over from the era of the gold standard. They don't have as big a function today as they used to. So if dropping them can lead to a recovery, then politicians are likely to ask why not do it? This would also cut the deficit (temporarily), and who wouldn't want that?

We also need to remember that the current government, being keynesian, believes that the only problem is the "animal spirits" - the "gut feeling" of the investors. The market is fine, the economy is recovering, now if only the investors and entrepreneurs would understand that, maybe it would become the case - that's how the thinking goes. Investors have become so used to buying commodities, they can't see the economy is fine and worth investing in again. They're irrationally pessimistic, it has become a habit after the past couple of years. If we can only dump commodity prices, they'll be forced to re-evaluate and understand what our wise leaders understood a long time ago: The crisis was over the 20th of January 2009 and the last three summers have been recovery summers. And so will the next one.

Another possibility is that instead of actually selling the gold reserves, the government simply starts to hint that they might do it. Speculation that the market is about to be flooded with gold will be enough to cool off the gold market for a long time. And also, the US may not need the help from other countries. If they sell of their reserve, other countries may decide that this is the right time to do the same, before the gold price drops too much.

Of course I don't support this solution. First of all I'm not sure if it would even do what it's intended to do, it would be completely unprecendented and the effects would be hard to predict. Second of all, there are functional problems in the economic system, whether the the US and the European governments want to admit it or not. Third, gold reserves are good to have in case there is a currency crisis. A smarter move would be to buy gold instead of selling it.

There are several other reasons as well, but I think this will do for now. Thanks for reading,

John Gustavsson

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