Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
AI Tech Stocks Investing Portfolio Buying Levels and Valuations 2021 Explained - 2nd Mar 21
There’s A “Chip” Shortage: And TSMC Holds All The Cards - 2nd Mar 21
Why now might be a good time to buy gold and gold juniors - 2nd Mar 21
Silver Is Close To Something Big - 2nd Mar 21
Bitcoin: Let's Put 2 Heart-Pounding Price Drops into Perspective - 2nd Mar 21
Gold Stocks Spring Rally 2021 - 2nd Mar 21
US Housing Market Trend Forecast 2021 - 2nd Mar 21
Covid-19 Vaccinations US House Prices Trend Indicator 2021 - 2nd Mar 21
How blockchain technology will change the online casino - 2nd Mar 21
How Much PC RAM Memory is Good in 2021, 16gb, 32gb or 64gb? - 2nd Mar 21
US Housing Market House Prices Momentum Analysis - 26th Feb 21
FOMC Minutes Disappoint Gold Bulls - 26th Feb 21
Kiss of Life for Gold - 26th Feb 21
Congress May Increase The Moral Hazard Building In The Stock Market - 26th Feb 21
The “Oil Of The Future” Is Set To Soar In 2021 - 26th Feb 21
The Everything Stock Market Rally Continues - 25th Feb 21
Vaccine inequality: A new beginning or another missed opportunity? - 25th Feb 21
What's Next Move For Silver, Gold? Follow US Treasuries and Commodities To Find Out - 25th Feb 21
Warren Buffett Buys a Copper Stock! - 25th Feb 21
Work From Home Inflationary US House Prices BOOM! - 25th Feb 21
Man Takes First Steps Towards Colonising Mars - Nasa Perseverance Rover in Jezero Crater - 25th Feb 21
Musk, Bezos And Cook Are Rushing To Lock In New Lithium Supply - 25th Feb 21
US Debt and Yield Curve (Spread between 2 year and 10 year US bonds) - 24th Feb 21
Should You Buy a Landrover Discovery Sport in 2021? - 24th Feb 21
US Housing Market 2021 and the Inflation Mega-trend - QE4EVER! - 24th Feb 21
M&A Most Commonly Used Software - 24th Feb 21
Is More Stock Market Correction Needed? - 24th Feb 21
VUZE XR Camera 180 3D VR Example Footage Video Image quality - 24th Feb 21
How to Protect Your Positions From A Stock Market Sell-Off Using Options - 24th Feb 21
Why Isn’t Retail Demand for Silver Pushing Up Prices? - 24th Feb 21
2 Stocks That Could Win Big In The Trillion Dollar Battery War - 24th Feb 21
US Economic Trends - GDP, Inflation and Unemployment Impact on House Prices 2021 - 23rd Feb 21
Why the Sky Is Not Falling in Precious Metals - 23rd Feb 21
7 Things Every Businessman Should Know - 23rd Feb 21
For Stocks, has the “Rational Bubble” Popped? - 23rd Feb 21
Will Biden Overheat the Economy and Gold? - 23rd Feb 21
Precious Metals Under Seige? - 23rd Feb 21
US House Prices Trend Forecast Review - 23rd Feb 21
Lithium Prices Soar As Tesla, Apple And Google Fight For Supply - 23rd Feb 21
Stock Markets Discounting Post Covid Economic Boom - 22nd Feb 21
Economics Is Why Vaccination Is So Hard - 22nd Feb 21
Pivotal Session In Stocks Bull Bear Battle - 22nd Feb 21
Gold’s Downtrend: Is This Just the Beginning? - 22nd Feb 21
The Most Exciting Commodities Play Of 2021? - 22nd Feb 21
How to Test NEW and Used GPU, and Benchmark to Make sure it is Working Properly - 22nd Feb 21
US House Prices Vaccinations Indicator - 21st Feb 21
S&P 500 Correction – No Need to Hold Onto Your Hat - 21st Feb 21
Gold Setting Up Major Bottom So Could We See A Breakout Rally Begin Soon? - 21st Feb 21
Owning Real Assets Amid Surreal Financial Markets - 21st Feb 21
Great Investment Ideas For 2021 - 21st Feb 21
US House Prices Momentum Analysis - 20th Feb 21
The Most Important Chart in Housing Right Now - 20th Feb 21
Gold Is the Ultimate Reserve Asset - 20th Feb 21
Is That the S&P 500 And Gold Correction Finally? - 20th Feb 21
Technical Analysis of EUR/USD - 20th Feb 21
The Stock Market Big Picture - 19th Feb 21
Could Silver "Do a Palladium"? - 19th Feb 21
Three More Reasons We Love To Trade Options! - 19th Feb 21
Here’s What’s Eating Away at Gold - 19th Feb 21
Stock Market March Melt-Up Madness - 19th Feb 21
Land Rover Discovery Sport Extreme Ice and Snow vs Windscreen Wipers Test - 19th Feb 21
Real Reason Why Black and Asian BAME are NOT Getting Vaccinated - NHS Covid-19 Vaccinations - 19th Feb 21
New BNPL Regulations Leave Zilch Leading the Way - 19th Feb 21
Work From Home Inflationary House Prices BOOM! - 18th Feb 21
Why This "Excellent" Stock Market Indicator Should Be on Your Radar Screen Now - 18th Feb 21
The Commodity Cycle - 18th Feb 21
Silver Backwardation and Other Evidence of a Silver Supply Squeeze - 18th Feb 21
Why I’m Avoiding These “Bottle Rocket” Stocks Like GameStop - 18th Feb 21
S&P 500 Correction Delayed Again While Silver Runs - 18th Feb 21
Silver Prices Are About to Explode as Stars are Lining up Like Never Before! - 18th Feb 21
Cannabis, Alternative Agra, Mushrooms, and Cryptos – Everything ALT is HOT - 18th Feb 21
Crypto Mining Craze, How We Mined 6 Bitcoins with a PS4 Gaming Console - 18th Feb 21
Stock Market Trend Forecasts Analysis Review - 17th Feb 21
Vaccine Nationalism Is a Multilateral, Neocolonial Failure - 17th Feb 21
First year of a Stocks bull market, or End of a Bubble? - 17th Feb 21
5 Reasons Why People Prefer to Trade Options Over Stocks - 17th Feb 21
The Gold & Gold Stock Corrections Are Normal - 17th Feb 21
WARNING Oculus Quest 2 Update v25 BROKE My VR Headset! - 17th Feb 21
UK Covid-19 Parks PACKED During Lockdown Despite "Stay at Home" Message - Endcliffe Park Sheffield - 17th Feb 21
How to Invest in ETFs in the UK - 17th Feb 21
Real Reason Why Black and Asian Ethnic minorities are NOT Getting Vaccinated - NHS Covid-19 Vaccinations - 16th Feb 21
Gold / Silver: What This "Large Non-Confirmation" May Mean - 16th Feb 21
Major Optimism for Platinum, Silver, and Copper - 16th Feb 21
S&P 500 Correction Looming, Just as in Gold – Or Not? - 16th Feb 21
Stock Market Last pull-back before intermediate top? - 16th Feb 21
GAMESTOP MANIA BUBBLE BURSTS! Investing Newbs Pump and Dump Roller coaster Ride - 16th Feb 21
Thinking About Starting to Trade This Year? Here Are Some Things to Keep in Mind - 16th Feb 21
US House Prices Real Estate Trend Forecast Review - 15th Feb 21
Will Tesla Charge Gold With Energy? - 15th Feb 21
Feeling the Growing Heat and Tensions in Stocks? - 15th Feb 21
Morgan Stanley Warns Gasoline Industry Is About to Become Totally Worthless - 15th Feb 21
Debts Lift Gold - Precious Metal Prices Will Rise on a Deluge of Red Ink - 15th Feb 21
Platinum Begins Big Breakout Rally - 15th Feb 21
How to Change Car Battery Without Losing Power, Memory, Radio Code Settings - 15th Feb 21
Five reasons why a financial advisor can make a big difference to your small business - 15th Feb 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Gold Sales - The Reasoning Behind Switzerland's Policy Decision

Commodities / Gold & Silver Jun 29, 2007 - 01:33 PM GMT

By: Julian_DW_Phillips


The classic question has to be asked again, what is the price of gold? If we answer $xxx, then we have to ask the next question, what is the price of a $?

Is the $ so reliable a store of value that it can be used as a measure of gold? This questions the very foundation of the paper currency system. Can one trust the $ or even the international monetary system? It's all a question of degree.

  • The U.S. holds mainly gold in its reserves, because it is the issuer of the globe's reserve currency. This does imply that it is completely dependent on its own currency, the $, in the global economy. As the foundation of the world's monetary system, should the currency lose the confidence of its own or other nation's citizens, the international money and trade relations across the world will be damaged severely. It is thought that this process is well under way.

  • The Eurozone community's Central Bank drew off 15% of its reserves in gold from its members. This does not mean they intend to only hold 15% of its reserves in gold, nor does it imply that there is a rigid exchange rate between gold & the €. But the question of how to measure 15 of reserves is raised. From the beginning of the Central Bank Gold Agreement the E.C.B. decided to sell a fixed tonnage of 235 tonnes of these reserves for paper currencies, ostensibly to keep this rough proportion in their reserves. The E.C.B. is fully aware of the dangers of measuring gold in the $ and in the € for that matter, but for the sound functioning of the paper currency world it is crucial that gold be subject to measurements in paper currency terms and not the other way around. With the higher prices this is around 25% of the E.C.B. reserves, perhaps a level they prefer?

  • Germany, who gained the option to sell up to 500 tonnes of its gold, has not done so, citing that “gold is a useful counter to the swings in the $”. Of course a doubling in the price of gold since making this decision is paying off handsomely. We commend the pragmatism of the Germans, for reserves are there for a rainy day and are not a pension fund scheme to make it grow profitably. Certainly this can be a secondary objective but never take over first place. The reserves have to be credible in times of distress and acceptable to all ones trading partners. Germany is aware that the times are a changing and are keeping their eye on the future of the global economic and monetary order and guarding against it.

  • Italy has no plans to sell any gold, which is unsurprising given the very poor history of the Italian Lira. They too have seen several currencies come and go in the last one hundred years, so they have few illusions about the joys of compound interest, after all adding noughts to a currency doesn't make them more valuable, it's the buying power that counts. So, will the $ today, with interest added over the next decade or two, be worth more than today's equivalent in gold in a decade or two?

  • The Swiss Franc has always been one of the most stable of the globe's currencies within one of the most stable and constant of economies. In times of global war or uncertainty, this peaceful anti-war country becomes itself a ‘safe-haven' for foreigner's savings. So it is almost a source of safe money and financial security in itself. So their concept of a rainy day contains far less moisture than other countries. It is therefore financially more secure and less dependent on its reserves than other countries whilst being small enough to adjust if reserve holdings within the foreign exchange markets capacities at present. With the mix of gold and currencies in their portfolio, their character being taken into account, you can be sure they have covered their backs on the risk front and stand to gain either way the cookie crumbles. So it is of little account that they sell some more gold. We see it as a gesture of support for the paper currency system, a gesture they see as protecting their overall reserves portfolio. 

So why sell gold, or more pertinently, why sell a little gold and retain sufficient for bad times? It is to ensure the retention of value in the overall portfolio; it is not the getting rid of the gold content therein. 

Clearly, Switzerland with its constantly sound position as bankers to the wealthy of Europe and its dependence on the banking industry, has a vested interest in a mix of global paper currencies more so than those nations that have an unsound Balance of Payments, smaller reserves and face greater economic risks in the global economy [Other countries with current account deficits include Australia, New Zealand, Britain, France, Italy, Greece, Spain, Czech Republic, Poland, India, Pakistan, Colombia, Mexico, Hungary, Turkey, South Africa and others]. 

The big question is will gold have a greater real value in times of distress than yield earning national currencies? In the last world war, what value did the Deutschmark or the U.S.$ have internationally [remember forgery is one of the acceptable weapons of war]? And what value did gold have? – No contest. 

With economic power shifting Eastwards and the Asian nations growing away from their dependence on the U.S. economy, inevitably reserve currency dependence such as we are used to with the $, is changing, is fragmenting with other currencies coming onto the scene and with national interests clashing and exerting pressure on the different important global currencies. Should these pressures grow beyond a certain almost indefinable point, then paper currencies will not garner the same level of confidence as they do now, and the unquestionable international reliability of gold as a measure of value will ascend above paper money.

Prime Minister Brown of the U.K. went the way Switzerland is, again, going to go in 1998, looking for a more profitable content [?] to the U.K.'s gold and foreign exchange reserves and paid a heavy price that is growing as the gold price rises. Did he act for political reasons in support of the € and the more controllable paper currency system? We believe Switzerland may be following the same line of reasoning as Brown did. After all, if we measured the proceeds achieved from the last sale and the total value of those plus the interest thereon, what would the shortfall against today's value of that gold?

So the mix of foreign exchange and gold reserves is essentially a gamble on the future.

Please subscribe to: for the entire report.

By Julian D. W. Phillips
Gold-Authentic Money

Copyright 2007 Authentic Money. All Rights Reserved.
Julian Phillips - was receiving his qualifications to join the London Stock Exchange. He was already deeply immersed in the currency turmoil engulfing world in 1970 and the Institutional Gold Markets, and writing for magazines such as "Accountancy" and the "International Currency Review" He still writes for the ICR.

What is Gold-Authentic Money all about ? Our business is GOLD! Whether it be trends, charts, reports or other factors that have bearing on the price of gold, our aim is to enable you to understand and profit from the Gold Market.

Disclaimer - This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold-Authentic Money / Julian D. W. Phillips, have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Gold-Authentic Money / Julian D. W. Phillips make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold-Authentic Money / Julian D. W. Phillips only and are subject to change without notice.

Julian DW Phillips Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Trader Joe
30 Jun 07, 13:09
Your a Gold Bull

From your articles on this site, what comes across is that your a permanent gold bull, !

YOU need to be able to trade both sides !

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules