Central banks are shifting from greenbacks into gold in a realignment to beat the debt crisis

Why would some global central banks actually want the price of gold to rise? Well they hold a lot of it on their balance sheets and in order to balance their assets against their rising liabilities one way to achieve this is to allow the price of gold to go up.

So inflate away the debts of the world by allowing the price of gold to increase? It is not as mad as it sounds. If you want to reset the global financial system this is one method of achieving it: tie the currencies of the world more closely to gold. It worked before for several hundred years.

Ex-Fed initiative?

You could not imagine the US Federal Reserve leading this, but the central banks of China, Russia and Europe? It is not so outlandish at all. The Chinese have a stated policy of doubling their gold reserves over the next three years and have supported the IMF’s plan for Special Drawing Rights including gold as a new global currency.

Perhaps we should approach this from another direction. How likely is it that the US dollar will continue to remain the reserve currency of global trade with the Fed now committed to QE to infinity and a much lower US dollar?

If the present foreign holders of the greenback sign up to this future scenario then they are going to pay off US debts through dollar devaluation. Do they want to do this? Most probably not and that is why so many central banks are again net buyers of gold whereas they were net sellers a few years back.

Gold and US debt

For gold bugs this is something of an ideal scenario. Both the global central banks down to the small investor are planning for a dollar collapse as the mounting debts over power the once almighty US financial system. By doing so they make it more likely and drive up the price of gold in the process.

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