Uncle Sam is hoarding gold -- and so is the rest of the world - Wealth Managers

"Given the craziness in D.C … investors should really be questioning the intrinsic value of paper dollars"

Self-described "gold agnostic" Brett Arends of MarketWatchsounds surprised that "the people running the United StatesTreasury ... remain firm believers in gold. Big-time."

In an article titled "Why Uncle Sam is hoarding gold," he asked some Treasury officials whether selling gold is on the agenda given the current debt-ceiling crisis. "Selling gold would undercut confidence in the U.S. both here and abroad," a spokeswoman said, "and would be destabilizing to the world financial system."

Calling the response "extraordinary," Arends notes: "We hear all this skepticism these days about gold. Yet the Treasury itself considers U.S. gold holdings to be a key element in maintaining confidence in the country's soundness -- and the stability of the international financial system.

"I thought gold was a joke. Totally over. I thought no one cared about gold. But if that were really the case, why wouldn't the government just dump the holdings for whatever it could get?"
"Paper dollars backed by feckless promises"
One person whom Arends interviews gives a great answer. "With gold on the ropes this year, investors are increasingly questioning the intrinsic value of gold," Appleseed fund execJosh Strauss tells Arends. "Given the craziness in D.C., it seems to me that investors should really be questioning the intrinsic value of paper dollars backed by feckless promises."

Arends' surprise about Treasury's gold stance is quizzical given that central banks became net buyers in 2010 after two decades as net sellers, motivated by the 2008 financial crisis and the unprecedented money printing that has followed.

Russia's central bank just bought gold for the 11th month in a row, joined by a host of other peer sovereign banks. "Central banks continue to view gold as good value on a long-term basis," said Victor Thianpiriya, an analyst with Australia and New Zealand Banking Group. Such buying "should continue to be a supporting factor going forward."
"We have no plan to sell gold"
And just this past Monday, Reuters reported on the latest conference of the London Bullion Market Association, in which representatives of three major central banks -- in Italy, France, and Germany -- reaffirmed the importance of gold to their institutions as well as their intent to never sell their gold.
"Not only does (gold) have the vital characteristic of allowing diversification, in particular when financial markets are highly integrated, in addition it is unique among assets in that it is not issued by any government or central bank, so its value cannot be influenced by political decisions or by the solvency of any institution," said Banca d'Italia director Salvatore Rossi.
"These features, coupled with historic ... and psychological reasons, stand in favor of gold's importance as a component of central bank reserves," he said. "Gold underpins the independence of central banks in their ability to (act) as the ultimate bearer of domestic financial stability."

Other European central banks at the conference, including theBank of France and Germany's Bundesbank, also said they will not sell their bullion. "We have no plan to sell gold," Bank of France exec Alexandre Gautier vowed.

And Central Bank of Argentina exec Juan Ignacio Bascotold attendees: "We are accumulating (gold) slowly. ... We must remember that we are like elephants."
China "buying low and selling high"
And it's an open secret that China continues to amass gold on every level, but strategically and surreptitiously so as not to drive up global gold prices with overt purchases. As recently as November 2012, Gao Wei of China's Department of International Economic Affairs wrote a commentary in theChina Securities Journal stating: "China can build its reserves by buying low and selling high amid the short-term volatility." Gao also described China's gold reserves as being "too small." For more on China's plan to quietly accumulate gold, read Addison Wiggin's July 2013 article "China working quietly to buy up gold."

Given that the rest of the world at the sovereign level seems keenly interested in gold despite recent price weakness, Arends shouldn't have been so surprised by Treasury's stance. A better question for him to have explored might be:"Why will it take the Federal Reserve seven years to give Germany its gold back?"

More information can be found online at http://www.goldbullionadvisors.com