3 ms·

> Central banks could burst this bubble easily by selling off their gold reserves Some central banks already sold their gold http://en.wikipedia.org/wiki/Sale_

by dgregd 14y ago

> Central banks could burst this bubble easily by selling off their gold reserves Some central banks already sold their gold http://en.wikipedia.org/wiki/Sale_of_UK_gold_reserves,_1999-2002 http://en.wikipedia.org/wiki/Sale_of_UK_gold_reserves,_1999-...

bitcartel 14y ago
Revealed: why Gordon Brown sold Britain's gold at a knock-down price (http://blogs.telegraph.co.uk/finance/thomaspascoe/100018367/revealed-why-gordon-brown-sold-britains-gold-at-a-knock-down-price/ http://blogs.telegraph.co.uk/finance/thomaspascoe/100018367/...) "When Brown decided to dispose of almost 400 tonnes of gold between 1999 and 2002, he did two distinctly odd things. First, he broke with convention and announced the sale well in advance, giving the market notice that it was shortly to be flooded and forcing down the spot price. This was apparently done in the interests of “open government”, but had the effect of sending the spot price of gold to a 20-year low, as implied by basic supply and demand theory. Second, the Treasury elected to sell its gold via auction. Again, this broke with the standard model. The price of gold was usually determined at a morning and afternoon "fix" between representatives of big banks whose network of smaller bank clients and private orders allowed them to determine the exact price at which demand met with supply. The auction system again frequently achieved a lower price than the equivalent fix price. It seemed almost as if the Treasury was trying to achieve the lowest price possible for the public’s gold. It was."
nhaehnle 14y ago
Thank you for pointing this out. I believe there are still some good reasons to question whether this is good evidence against the power of central banks to burst the gold bubble. First of all, if you look at the price of gold in real terms at the time of this gold sale, you'll find that it was on the low end, but still went down quite a bit, considering the relatively small volume of the gold sale. Second, speaking about it in terms of volume, around 2700 tonnes of gold are produced every year, while 34000 tonnes of gold are held by central banks, around 18000 tonnes by the US plus European countries. Who would vacuum up that supply? There are two honest questions in this regard: 1) Are there any good models for this type of problem? Basically, what we're asking here is how commodity prices are affected by hoarding of non-users of the commodity. 2) Given that there are discussions of a ban on artificial hoarding on other commodities (e.g. rare earths) in the interest of protecting the industrial and productive use of those commodities, wouldn't it actually make sense to do the same with gold?
- dgregd 14y ago
  > Who would vacuum up that supply? I guess China would be more than happy to exchange US bonds for gold.

by dgregd 14y ago

bitcartel 14y ago

Revealed: why Gordon Brown sold Britain's gold at a knock-down price (http://blogs.telegraph.co.uk/finance/thomaspascoe/100018367/revealed-why-gordon-brown-sold-britains-gold-at-a-knock-down-price/ http://blogs.telegraph.co.uk/finance/thomaspascoe/100018367/...) "When Brown decided to dispose of almost 400 tonnes of gold between 1999 and 2002, he did two distinctly odd things. First, he broke with convention and announced the sale well in advance, giving the market notice that it was shortly to be flooded and forcing down the spot price. This was apparently done in the interests of “open government”, but had the effect of sending the spot price of gold to a 20-year low, as implied by basic supply and demand theory. Second, the Treasury elected to sell its gold via auction. Again, this broke with the standard model. The price of gold was usually determined at a morning and afternoon "fix" between representatives of big banks whose network of smaller bank clients and private orders allowed them to determine the exact price at which demand met with supply. The auction system again frequently achieved a lower price than the equivalent fix price. It seemed almost as if the Treasury was trying to achieve the lowest price possible for the public’s gold. It was."

nhaehnle 14y ago

Thank you for pointing this out. I believe there are still some good reasons to question whether this is good evidence against the power of central banks to burst the gold bubble. First of all, if you look at the price of gold in real terms at the time of this gold sale, you'll find that it was on the low end, but still went down quite a bit, considering the relatively small volume of the gold sale. Second, speaking about it in terms of volume, around 2700 tonnes of gold are produced every year, while 34000 tonnes of gold are held by central banks, around 18000 tonnes by the US plus European countries. Who would vacuum up that supply? There are two honest questions in this regard: 1) Are there any good models for this type of problem? Basically, what we're asking here is how commodity prices are affected by hoarding of non-users of the commodity. 2) Given that there are discussions of a ban on artificial hoarding on other commodities (e.g. rare earths) in the interest of protecting the industrial and productive use of those commodities, wouldn't it actually make sense to do the same with gold?

dgregd 14y ago
> Who would vacuum up that supply? I guess China would be more than happy to exchange US bonds for gold.