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Western central banks hold hundreds of year's worth of production/consumption of gold. And much more than any ETF or private entity.

At some point, they will want to kill the gold bubble, for several reasons:

  • just to kill some speculators for the example,
  • to stop capital from running away in useless, non-productive assets,
  • to kill off inflationista scaremongering, in the case of the germans at the ECB (the fed on the other hand, IS an inflation scaremonger)
  • to make a little money for themselves (they have huge unrealized gains in gold)

So I don't think it's a good idea to diversify much into gold, save for a handful of "napoleons". A concerted action by central banks can smash gold to 100$ anytime, within just one week.

Pierre
by Pierre on Thu Nov 26th, 2009 at 09:12:11 AM EST

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