Bogleheads

[LH]

http://www.ft.com/cms/s/0/0eaa....abdc0.html

Interesting article, seems to be a big move by a big emerging market to gold.

Below is a cool interactive gold graph with historical information. Its much more exciting reading about things when they are hot. Way things have been going, I predict gold 36,000 : P

http://www.ft.com/cms/s/0/046b....abdc0.html

[neverknow]

So if Gold is in a bubble as so many would like to say it is - the central bank of India just bought 200 tons at bubble prices from the IMF.

What does this say?

Or I guess, rather the question is - what does it say to you?

Does anyone know the history of what currencies and Gold did, following the banking collapses in 1931?

--- I believe the banking collapses started in Europe somewhere, and dominoed into the US. It's also my understanding that the Pound Sterling was the world reserve currency at that time ... And that the fixed price of Gold was reset sometime in the 30's, by someone. I know private Gold was confiscated in the US in the 30's, as my great grandfathers business was melting that Gold for the government.

The real question in my mind is "why is it different this time?" ... as in the 30's were developed world banking crisis's, that domninoed more globally. It has happened again. Yet, we are all (the collective we) walking around as if Gold doesn't matter, and the US Dollar will retain "world reserve currency" as has been true since WW II. And I think the more critical question for those of us heavily invested in US equities (in the continued growth of the US) is we know "world reserve currency" status does give that country an economic advantage --- but we all (again, the collective we) invest as if nothing has changed, and historical returns post WW II will continue.

Personally, I have to hold in my mind, that it is not different this time. The US is not anymore special then the UK was, back then. And what ever kind of disruptions we saw back then (as the result of a developed world banking crisis) could indeed, play out again, over time - of course. The issues of that banking crisis were not solved in a year or two. Why in the world do we think this one will?

I don't know the future. I don't even know enough of what happened to currencies and Gold prices back in the 30's. But we do know "it is different this time" is a fallacy that can make your asset prices drop significantly in value.
neverknow

[slick_dealer_05]

The question to ask is : Should India's Central Bank keep continuing to have their reserves in US Dollar or diversify ?

U$ Dollar is in a free fall and Indian Central Bank feels that it will continue to be so for the next few years. Therefore, they want to hold their reserves in something more concrete.

[linuxizer]

It's interesting news, but who knows what it will mean for the long run. If it represents a new trend for central banks to own gold (or to avoid dollars), then it could augur well for the price of gold. On the other hand, the vast majority of gold produced each year (as opposed to gold held, which is a very different distribution since gold is so durable) goes to jewelry (92.8 million fine troy oz in 1999 out of a total of 112.8 million fine troy oz--82%), the demand for which economists believe to be highly price-elastic, so in the long run this may dampen out.

Another interesting thing about this purchase is that I believe India bought the gold from the IMF. This means it essentially doesn't represent an increase in the holdings of governmental and quasi-governmental banks, just a transfer. This seems to be the pattern going back as far as 1971:

"In spite of a significant decrease in the amount of gold reserves held by some countries, such as the USA and the UK (where a significant decrase occurred only in the early 1970's), there is no evidence that the total amount of gold held as reserves in the world has decreased since 1971. Some countries, including Japan, France, Germany, and the Netherlands, have actually maintained or even increased the level of the gold reserves compared to what they held in 1970. Throughout the 1970's, teh total amount of gold held by monetary authorities has been stable.... The 1990's witness a slight decrease in the level of gold holdings." Page 3, Gold and the Modern World Economy, MoonJoong Tcha, 2003.

[Findelglorin]

I think it makes sense for India and other countries to diversify out of the dollar given the awful behavior of our government in terms of spending, debt, etc. Why would any sane country want to have all their eggs in our basket?

That said, I favor buying silver and other precious metals as well as gold. Gold is great but there again why put all your eggs into one basket? Real diversification makes sense.

As far as the dollar goes, its days as the world's reserve currency are coming to an end. We abused the privileges that went along with that and now other nations are wisely realizing that we cannot be trusted.

[Specialized]

[honkeoki]

[Findelglorin]

I meant diversification within precious metals (along with possibly PM stocks, etc.). I was NOT talking about overall portfolio diversification. So please get off my back and don't assume such things.

[Opponent Process]

[Latecomer]

Ok, now, in terms of trading: I see it now - gold coins shipped around the world to pay for food, building materials, and clothing.

[neverknow]

[neverknow]

[Opponent Process]

[mfen]

We all know that central banks are so smart:

Bank of France blamed for gold sell off (2006)

http://www.telegraph.co.uk/fin....l-off.html
_________________
Maryanne

[mathu1968]

[mudfud]

[stratton]

[neverknow]

[linuxizer]

[snowman9000]

I think gold will be $2000 before it will be $500. The "should I buy gold" posts are just getting rolling.

That opinion, and a dollar, will get you a McDouble cheeseburger.

[Jack]

200 metric tons of gold is a cube about 7.2 feet on a side.

[dual]

[musbane]

and, for what it's worth, gold is significantly heavier than lead

[norookie]

fwiw you know the "culture" over in india really VALUES gold for some reason, I know not. Maybe im clueless. Just sayin..
_________________
"I hope to put my last dime when I die, in the parking meter in front of the state house, then die in my car awaiting many parking tickets"

[djw]

Maybe the Indians value gold because they don't have an FDIC-insured bank nearby...

[honkeoki]