Stephen Jen: Sovereign Buyers Could Tip Gold into Stratosphere
Print This Story
November 27th, 2009 by AdvisorAnalyst
Twitter It! | Email This Article
Stephen Jen (Blue Gold Capital), who was formerly Morgan Stanley’s expert on sovereign wealth funds believes that China, India and Russia’s continuing purchases of gold bullion could be the catalyst for gold to rise in price into the stratosphere. He says that as their foreign exchange reserves as a percentage of their GDP is nearing 100%, the pressure to diversify away from fiat currency could reach a critical tipping point, should they decide to simply double their exposure to gold. As of this week, it turns out that India may emerge as the buyer of the remaining half of the IMF’s 400-ton sale of gold.
Here is an excerpt from Ambrose Evans-Pritchard’s Telegraph article:
China, India, and Russia have all been buying gold on a large scale over recent months.
Why should that stop when the AAA club of sovereign debtors is pushing towards the danger threshold of 100pc of GDP?
These new players account for almost all the accumulation of foreign currency reserves worldwide over the last five years, so what they do matters enormously.
Advertisement
After crunching the numbers, Mr Jen found that the share of gold in their reserves is just 2.2pc compared to 38pc for the Old World (perhaps we should just call them the deadbeats from now on). They would have to buy $115bn of gold at current prices to raise their bullion to just 5pc of total reserves, and $700bn to reach just half western levels.
The killer-term here is at current prices since any such move in the tiny global market for gold would send prices into the stratosphere.
The reality is that sovereign debtors to the US may not be able stop supporting their symbiotic monetary relationship with the dollar, by buying US treasuries, but they can increase their proportionate interest in gold denominated reserves.
Read the article here.
Read more from the author/contributor here.
Related Posts
Tags: 2pc, Aaa Club, Accumulation, Ambrose, Blue Gold, China, Currency Reserves, Deadbeats, Debtors, Emerging Markets, Evans Pritchard, Fiat Currency, Foreign Currency, Foreign Exchange Reserves, Gold, Gold Bullion, Gold Capital, Imf, India, Morgan Stanley, Proportionate Interest, S 400, Stratosphere, Telegraph Article, Tipping Point, TreasuriesPosted in Emerging Markets, Gold, India, Markets |
