19 April 2008

Russia Buys Deliverable Gold and the Madness of Bankers

Here's an odd little story we have come across. Russia has purchased gold for its reserves directly from the gold producers, not from the interbank market, the central bank boys' club. This is the first time they have had to do this.


Perhaps, if Russia found that there was not enough deliverable gold on the central interbank market to fill its needs, and had to find fresher sources of the physical metal at today's prices, rather than interbank IOU's.

As you recall, the G7 central banks have been selling their gold slowly but surely for quite a few years now, with some having sold most of their reserves. Apparently they do this to raise cash when their printing presses are trés fatigué.

Sometimes they have done it quite noisily and a little stupidly, as in the case of the Bank of England. A seller generally does not crush the price with clumsy announcements before they intend to sell. At least not the seller who seeks a fair price and a reasonable profit, especially when selling on consignment.

The IMF has pledged to sell the same 400 tonnes of gold about twenty times if memory serves. If they were paid for announcements of sale rather than actual sales, they would be simply rolling.

But some central banks have been buying, and building up their reserves, and strengthening their currencies for the future.

Perhaps this is nothing, and not even close to a significant development.

But it strikes a chord. The US has sold off its entire official store of silver which was enormous, and now must scramble in the open markets to buy actual silver for the Mint.

Spain has sold off its gold reserves entirely we hear. They are content to have a claim on Germany's gold. Even the frugal Swiss have been releasing their national savings of the barbarous relic. Einer für alle, alle für nichts.

Such are the changing fashions in the haute couture of bank reserves and monetary taste. Most of the banks in the US are already fashionably insolvent, with paper claims on paper claims, although we hear London is also vying for title to the financial grande dame (pun intended as 'grand lady' or 'big hurt') for the world.

La moneta è mobile, qual piuma al vento, muta d'accento — e di pensiero.

Its an interesting theme, the world of financial speculation diverging from the natural world, into a realm of self-absorbed arbitrariness. Almost like a form of collective madness among the bankers, with their mountains of derivatives and paper bets and claims on the same set of things over and over, coming up short in fits and starts, shakes and shudders, slips and the occasional stumbles.

Nearly had a nasty spill the other week when the dice came up unfavorably for one of the largest banks at the table. Some think this will frighten them into more conservative behaviour, eliminating the need for reform. We predict they will be back at the tables as though nothing had happened.

Sempre un'amabile, furtivo banca, in pianto o in riso, — è menzognero.

Who is mad, the savers and builders or those who gamble and consume into hopeless indebtedness? Who is mad, conservative banks or the massively-leveraged English-speaking banks? As Churchill would say, "KBO." For none dare call the Emperor naked.

Russia. The new hard money currency. Possible candidate for the world's reserve currency? Oh the irony!

Russia & CIS
11:23 GMT, Apr 18, 2008 Latest Headlines...

For first time, Central Bank buys gold from producers - source

MOSCOW. April 18 (Interfax) - For the first time, the Central Bank
of Russia purchased gold for its international reserves from gold
producers, a source in banking circles told Interfax.

Previously the Central Bank had always purchased gold on the
interbank market.

jh (Our editorial staff can be reached at eng.editors@interfax.ru)

Interfax - Russia Goes to the Producers to Buy Its Gold
Rigoletto, Verdi
La donna è mobile
Qual piuma al vento,
Muta d'accento — e di pensiero.
Sempre un amabile,
Leggiadro viso,
In pianto o in riso, — è menzognero.

Woman is variable
Like a feather in the wind,
Changing her tone — and her mind.
Always sweet,
Pretty face,
In tears or in laughter, — always lying