Issue link: http://resourceworld.uberflip.com/i/102869
Turkey, Russia and the Ukraine. Kazakhstan's central bank has stated that it plans to buy the country's entire domestic production over the next two to three years in order to reduce its reliance on the US dollar as a reserve asset, confirming that it is targeting an allocation to gold of 15% of its foreign exchange reserves. And China increased its gold bullion by six-fold in the first two quarters of 2012, indicating it too would retain all of the country's gold production. The significance of this shift becomes clear when you consider that the central banks went from being net sellers of about 500 tonnes to net buyers of 500 tonnes. This 1,000-tonne amount is noteworthy, since annual mine production is only about 2,500 tonnes. The Eurozone crisis provides another fascinating gold driver. Beyond the obvious consumer distrust of fiat currency as witnessed by well-documented bank runs and gold coin purchases in PIIGS countries, the WGC has initiated serious discussions of how gold-backed bonds could reduce sovereign borrowing costs to sustainable levels. The idea is that the Eurozone's 10,000 tonnes of gold reserves would unlock a cheaper form of financing for Eurozone member states. At national level, those states might reduce the rate at which they issue debt by using a portion of their gold reserves as collateral. Using gold for the purposes of sovereign debt issuance, thus leveraging up the value of a national asset, would allow greater flexibility beyond austerity – a tactic that is rapidly fraying the fabric of Europe's social trust. Influential media outlets across Europe have propagated this gold-backed bond solution. In the UK, the Guardian newspaper stated that "A solution to the Eurozone crisis is staring European leaders in the face…The application of gold backing would allow stricken nations such as Greece, Portugal, Spain and Ireland to depart from the restrictive Eurozone and the accompanying depressive austerity policies, if they wished. The bonds would give them time to devalue, adjust and 12 www.resourceworld.com NOVEMBER 2012