Alan Greenspan made some interesting comments re gold two days ago:
"If the dollar or any other fiat currency were universally acceptable at all times, central banks would see no need to hold any gold. The fact that they do indicates that such currencies are not a universal substitute.” – Alan Greenspan, Sep 29, 2014.
Writing in what is almost certainly the most influential policy-shaping magazine in the world, Foreign Affairs, the former Fed chairman discusses the very real possibility that China may embark on an enormous gold buying program next year. The Chinese central bank buy program would create immense strength in the yuan, and according to Greenspan it could raise Chinese central bank holdings to beyond the 8000 tons held by the US central bank. This would create a significant gold rally.
He says the price of gold may recede post China central bank buy in, but discounts that India may follow with a similar buy in.
A Chinese central bank gold buy program would make the US government and central bank very happy, because it would significantly devalue the dollar against the yuan, helping to reduce the gargantuan US trade deficit with China. The Fed would save face, because as the business cycle turned down, it wouldn’t have to bring back QE.Revaluation could also benefit Europe, which is battling deflation by devaluing the euro against the dollar. That policy is not working. In contrast, higher gold prices created by Chinese gold revaluation means higher commodity and retail goods prices, in both dollars and euros.
