gold Currencies - 5th October 2010

The UPSHOT from last week's London Bullion Market Association conference in Berlin, writes Adrian Ash of BullionVault, was that there's more sound and fury about bullion in the financial pages than in the dealing rooms right now.

Several dealers I spoke to said business was quiet, if not boring. Gold's current rally, said one speaker, "punches above its weight in terms of significance." Another noted that at the start of September, when Dollar-gold surpassed its June high, volatility was at a 5-year low. (It still is. Silver Price volatility has fallen to a 3-year low as it broke three-decade highs.)

You can see this lack of frenzy in prices alone, in fact – but only if you don't focus on the Dollar alone...

BullionVault's Global Gold Index shows the price of gold against the world's top 10 currencies, weighted by GDP.

The reservation of gold in central bank 2011

The reservation of gold in central bank 2011
The reservation of gold in central bank 2011

SEEING WASHINGTON'S belligerence over how Beijing pegs the price of its Yuan, three unsettling facts are buried amongst the latest central-bank gold data compiled by the World Gold Council...

• Central banks worldwide grew their physical gold reserves at the fastest pace since 1965 in 2009, adding bullion for the first time in two decades as a group;
• Emerging economies added a near-record volume of metal to their official reserves, putting more than 21% of all the gold held by sovereign states outside the control of developed-world OECD members;
• Western central banks, in contrast, shrank their reserves by more than 1% last year. Since the end of 2004, they have sold almost twice-as-much gold as non-OECD members have acquired (1881 vs. 994 tonnes).

As the gold-bug's Golden Rule says, "He who has the gold makes the rules" – an historic fact proven by the United States' own dominance of world finance and politics since the end of WWII.

And now that Congress is threatening trade sanctions against China for under-valuing its currency, the Yuan, Washington might want to take note of how its Dollar came to be the world's No.1 currency.