Friday, November 25, 2005

Russian Central Bank Gold Reserves to Double

The Russian Central Bank has announced that it is to double its gold reserves.
a move that Michael Kosares of USA Gold says is "the equivalent of the Washington Agreement in 1999, which kick-started the current gold bull market."

Kosares predicts the announcement could have a major impact on the gold price and may be the driving force for the second leg of this gold bull market.

Russian President Vladimir Putin said this week he endorsed the plan of
the Central Bank of Russia to double its gold reserves, and expressed
support for increasing Russia's gold production.

The Russian News and Information Agency reports the Central Bank of Russia's first deputy chairman, Alexei Ulyukayev said the bank would be buying gold "on all markets on which it is available," meaning both domestic and foreign markets.

Michael Kosares of USA Gold provides the following observations:

1. We should not forget that it was central bank buying that broke
the back of the anti-gold cartel in the late 1960s early 1970s. This
paved the way for the massive bull market of the 1970s.

2. Ulyukayev is not talking about paper trading for speculative
purposes. He's talking about buying physical gold and storing it in
reserve as a long-term asset.

3. This policy is a major, decisive departure for the G-8 in that
one of its members will be exchanging currency reserves for gold --
and after a public disclosure. Russia now is receiving a large
amount of foreign exchange for its oil and gas (this will not change
for quite some time), probably in the form of dollars and euros.
This looks like the first step in a long-term program.

4. Russian gold buying will become a new element in the physical
gold market, and likely will put even more pressure on those short
the metal to cover now while it is still cheap -- of course, that
Russia follows through. But I can't see why they would announce such
a plan without meaning it.

5. I rate this announcement by the Russian central bank as the
equivalent of the Washington Agreement in 1999, which kick-started
the current gold bull market. It amounts to a de-jure action that
could have a major impact on the gold market and comprise the
primary driving force for the second leg of this bull market.

Chris Powell of GATA provides this insight into the move by the Russian Central Bank:

Indeed, the unusual resilience of the gold price in recent months --
particularly since GATA's Gold Rush 21 conference in Dawson City,
Yukon, Canada, which was attended by one of President Putin's
economic advisers, Andrey Bykov -- hints that a central bank has
been a buyer for some time now.

Of course Russia's central bank took official note of GATA in June
2004, when another of its deputy chairmen, Oleg Mozhaiskov, told a
meeting of the London Bullion Market Association in Moscow about
GATA's contention that Western central banks had been rigging the
gold market to the detriment of the developing world:

Oleg Mozhaiskov said "Many have heard of the group of economists who came together in the society known as the Gold Anti-Trust Action Committee and started a number of lawsuits against the U.S. government, accusing it of organising an anti-gold conspiracy. They believe that with the assistance of a number of major financial institutions (they mention in particular the Bank for International Settlements, J.P. Morgan Chase, Citigroup, Deutsche Bank, and others), some senior officials have been manipulating the market since 1994. As a result, the price dropped below US$300 an ounce at a time when it should, if it had kept pace with inflation, have reached US$740-760."
Source: Russia's Central Bank Takes Note of Gata.

While GATA, given the Russians' interest, has been trying to convey
much to them, we have no inside information here. The Russians may
be good listeners but they have yet to prove themselves
conversationalists. But if YOU had a load of paper and electronic
currency whose proliferation was unlimited and if you were
disadvantaged by the imperial schemes of the issuer of that
currency, what would YOU do to protect your wealth and your national

1 comment:

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Michael Weinstein