I've been reminding people for some time now that the USA has the largest official gold reserves in the world. The Eurozone, collectively, also have big reserves of the stuff, even after almost a decade of agreements allowing them to sell the stuff off each year.
By contrast, the Chinese, Japanese, Middle East, Russia, etc. have very little. What they countries do have is loads of US and Euro paper currency and government bonds (ie. promises to pay paper currency, with interest).
I've always thought that the US has a Plan B in store for its creditors. Basically, it would try and game the system for as long as possible - keep exchanging real goods, like manufactures from Asia and oil from the Middle East, for its increasingly worthless paper. Well, now the likes of China are shouting for all the world to hear that the USA is about to debase their money and their not happy about it.
Days after the Chinese asked for protection, Bernanke announced quantitative easing. I think that the Chinese and the Russians are aware of what happens next: the US goes paper-crazy; in 2 or 3 years time, there is so much paper wandering around that their hard-earned dollar reserves are effectively confetti.
Then, we have Plan B: the US says that the dollar is effectively worthless and, instead, proposes a new world reserve currency standard, based on gold. "Oh, and whaddaya know? We've got the most gold reserves in the world. Go figure!"
I think that the Chinese and the Russians have belatedly figured out Plan B (goodness knows what the Japanese are thinking - they're not saying). So, they are proposing a new reserve currency that either fully or partially includes gold. By doing this, for each international transaction they undertake, they could demand that a portion of the amount be paid for in gold.
The gold will flow to the nations which run surpluses and away from the nations which run deficits. By calling for a gold-backed system now, the surplus nations get to start siphoning some amount of gold reserves from the Western nations, before they hyperinflate their debts (and therefore the surplus nations') reserves away.
I think that, over the rest of 2009, things are going to get very, very interesting in the gold market.
