Bailout Solution for the Common Man - “The People’s Central Bank”

European central banks have slashed sales of gold to the lowest levels for almost a decade, couple that with ‘Nightmare on Wall Street’ and the UK nationalising banks left right and centre, and a very interesting pattern starts to emerge.  The $700 billion dollar bail out plan should get under way this week in America – the same week that the UK government has bailed out another bank – and so we can all breath a big sigh of relief, say ‘thank God that’s over’ and sleep well knowing that the world will again be a happy and financially stable place again.  Your investments will be safe, your pension warm and cozy, and you need not concern yourself about financial security ever again…

Well maybe - unless you start to mull over the fact that the $700 billion is actually being handed over to the very people who created the global crisis in the first place, and if you’re an American tax payer it’s not so much ‘bail out’ as ‘bail in’ with your hard earned cash.  British tax payers have also had an extravagant weekends shopping what with footing the bill for Bradford and Bingley after it finally rolled over and died - I wonder if we will all have any further weekend banking buyout excursions lined up in the near term?  Now own up if you ever took financial advice from Bradford and Bingley… tut tut shame on you - and I bet you even walked past Ladbrooks on the way!

OK, on a more serious note, if you are slightly concerned about the banking meltdown and the potential impact that it will have on you investments I think you may well be very interested in knowing exactly why the European central banks’ reduction is gold sales is important to you…

The banks of the Eurozone together with those in Sweden and Switzerland sold 343 tonnes of gold in 1 year up to Friday last week.  That was the lowest amount since the Central Bank Gold Agreement (CBGA) was signed back in 1999, significantly lower than the 475.8 tonnes sold in the year up to September 2007.  The banks can sell up to 500 tonnes a year, and have previously edged up towards these boundaries.

This important European trend is part of a larger global movement of restricting gold sales that’s being coupled with increased gold investor buying that’s helping to underpin high prices for the commodity in a time of financial market turmoil.  The precious metals consultancy GFMS estimates that the global central banks will only sell 269 tonnes of bullion in total in 2008, the lowest level since 1995.

The majority of the European selling activity actually took place at the end of 2007 with a significant slow down having been witnessed ever since then.  As central banks sell less, so investors are rushing to the market to invest in bullion-backed trading funds to such an extent that analysts have started to refer to the exchange trading funds (EFTs) as “The People’s Central Bank” because they have now grown bigger than the majority of countries’ official reserves!

Gold bullion EFT holdings reached a record 1,056.7 tonnes – a dollar value of more than $30bn on Friday - up 33% in the past 12 months and more than double the 2006 level.  Less central bank selling of gold will almost certainly create a very bullish market in these uncertain times and potentially push the value of this commodity ever higher.

If you’re concerned about the safety of your investments and would like to look further into gold investment, one company that the Financial Times and we at Shelter Offshore recommend is BullionVault  — they have created a very safe and secure online method through which one can invest directly in gold. 

PLEASE NOTE: We receive a small referral commission for any accounts opened with BullionVault through this article, but the tiny dealing fee and storage charge you will pay would be no smaller without it.