This article today also from Kitco a very worthwhile read-
Turkey Central Bank Policy Signifies Key Shift In Gold's Role
Monday April 08, 2013 08:42
Editor's Note: Catch the latest addition to Kitco.com! Seasoned Metals Analyst, Kira McCaffrey Brecht will be sharing her extensive commodities knowledge on Kitco.com. Kira has been writing about the financial markets for over a decade -- posts during her career include Managing Editor at TraderPlanet, Chicago Bureau Chief at Futures World News, Market Analyst at Bridge News and Technical Analyst for MMS International and Managing Editor at SFO Magazine.
While gold prices continue to gyrate in the short-term, there are longer-term developments occurring in the treatment of gold that could have important implications for gold as a monetary financial asset in the future—actions by the Turkish central bank in recent years are an important case in point.
In September 2011, the Central Bank of Turkey implemented a shift in its commercial bank reserve policy deposit. Commercial banks are now allowed to satisfy up to 10% of their reserve requirements with gold bullion. The Central Bank also said up to 10% could be held in U.S. dollars and Euros. "This was unprecedented in modern times for a central bank to accept gold and foreign currencies as reserves against domestic bank deposits," wrote analysts at the CPM Group in a recent Precious Metals Advisory.
This is not new news and has been in place for about a year and a half now. But, it represents perhaps the beginning of a shift in perception that is important for gold investors to understand.
Jeff Christian, managing director at CPM Group, said "I talk with central banks a lot. Central banks have been talking for 30-40 years about what comes after the dollar for the international currency regime. One of the big issues is that there is nothing on the horizon to replace the dollar."
"A lot of central banks and monetary authorities would like to see multi-polar international currency regime where you have floating exchange rates and relatively de-regulated currency markets," Christian said.
Christian pointed to the Turkish central bank's move and called it a "great idea. Commercial banks can diversify deposits to include lira, the dollar, Euros or gold."
Looking ahead, this could just be the beginning. "I think what the Turkish Central Bank did will be replicated elsewhere. Gold will be further rehabilitated as a monetary financial asset. This shows gold is as legitimate as the dollar or the lira—that's big," Christian said.
Overall, the key take away from the Turkish central bank shift is that it shows "rehabilitation of gold as a financial asset and as portfolio diversification. What the Turkish central has done has taken a big jump forward," Christian said.
"Gold is enjoying a renaissance with investors and central banks. Investors are saying even in the best of times I should have more of my money in safe haven and have my portfolio diversified. We think people will continue to buy a lot of gold," Christian said.
This doesn't leave out the possibility that gold prices could continue to weaken in the near term driven by a variety of short-term influences. For 2013, Christian said "we expect gold prices to trade between $1,450 and $1,700 and we expect prices to average around $1,565."
Gold investors have become more price conscious in recent months. As bigger, longer-term structural imbalances remain including debts and deficits in major industrialized nations and even bigger global imbalances between old industrialized nations who still have the vast majority of political power, against rising emerging market nations who increasingly have more economic power, there is case to be made for the longer-term ownership of gold.
"Old industrialized nations have the political power, while rising emerging markets nations—especially China—have the economic power. You have not seen international political structures in the world adjust to current economic realities," Christian explained.
Most gold investors think long term. Key drivers for physical gold purchases include portfolio diversification, risk mitigation and capital preservation—these are not short-term phenomenons.
Gold's recent price retreat may ultimately be an opportunity for longer-term gold investors the opportunity to increase or begin gold purchases as part of an overall portfolio diversification strategy.
By Kira Brecht, contributing to Kitco.com, follow her on Twitter @KiraBrecht
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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BDR Price at posting:
82.0¢ Sentiment: Buy Disclosure: Held
