What Cyprus Tells Us About Gold

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by Adam Richardson

Quick note:  No introduction today as I’m returning home from a week long trip to Cambodia.  I’ll have more to tell you about that shortly!  Meanwhile thanks to Samuel Kraigwest for today’s article.

What Cyprus Tells Us About Gold

By Samuel Kraigwest

Cyprus to sell gold reserves to help fund bailout … Cyprus is to sell off much of its gold reserves  to help finance part of its bailout. – BBC

BBC News is reporting that Cyprus is to sell gold reserves to help fund its bailout. According to BBC, the European Commission says Cyprus must sell about 400m euros (£341m) worth of gold. Cyprus also has shut down one of its largest banks to gain 10bn euros from international lenders.

The gold sales are particularly of interest because they show us once again – as if we needed convincing – that gold remains a form of money that is desirable around the world. Of course, providing this gold won’t help with Cyprus’s larger dilemma. Here’s more from the BBC:

Even with that bailout, it is predicted that the Cypriot economy will shrink by 8.7% this year. Cyprus’s total bullion reserves stood at 13.9 tonnes at the end of February, according to data from the World Gold Council. At current prices, 400m euros’ worth of gold amounts to about 10.36 tonnes of metal.

The sale will be the biggest bullion sale by a eurozone central bank since France sold 17.4 tonnes in the first half of 2009. European finance ministers meet in Dublin on Friday to discuss the Cyprus bailout.

The bottom line here is when nations get into trouble, international creditors request gold as a surety of payment. During the Asian Contagion in the late 1990s, big European banks wouldn’t take Asian paper and insisted on gold.

It got so bad in South Korea reportedly, that the government sent officials door-to-door demanding a certain amount of gold from each household. No wonder among Indians and some Asian cultures it is popular to wear one’s wealth on one’s body. That’s one way of securing it.

In this era of central banking and fiat money, gold is often characterized as a “barbarous relic,” but in fact based on international appetite, it is still a standard money very much in demand.

This has implications not only for central banking as the global monetary crisis continues but also for stocks related to precious metals and mining. While equities in this area have been relatively quiescent, that could certainly change and many professional investors are anticipating this may happen sooner rather than later.

http://www.bbc.co.uk/news/business-22106187

Samuel Kraigwest is longtime commenter on the markets who grew up in the US but now travels the world in search of promising investments and the ever-elusive “best martini.” Kraigwest is also a contrarian investor who uses all of his life experience and investment knowhow to communicate the hard-truths of 21st century global speculation. Please visit the following address for a no-risk sample of a global newsletter with which he is involved.  https://secure.viscountmedia.com/order/sales_nigel3.html

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