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TheStreet Open House

An Age of Gold, Not a Golden Age

Stocks in this article: JPMBCSSCBFF

While the western currencies weaken due to heretofore unthinkable worldwide money-creation policies, China and countries in Asia that have "over saved" now sit on "massive monetary reserves." The level of such reserves has "become the most potent factor behind reserve diversification into other assets including gold," says Desai.

That is, the holders of these reserves are beginning to shun the dollar and the euro and are looking for safe havens. Sooner or later, China's renminbi will play a major international role. But as of today the Chinese financial system is very immature, riddled with huge asset problems, and is not capable of taking on more than a minor role in international trade.

As a result, as the world loses confidence in the dollar, euro, yen and sterling, safe havens will be sought as a hedge against currency devaluations. No doubt gold will be a major player.

We Want Our Gold Now

In mid-2011, Hugo Chavez's Venezuela demanded that 160 tons of its gold bullion kept by the Bank of England, JPMorgan Chase (JPM), Barclays (BCS) and Standard Chartered (SCBFF) be shipped back to Caracas. It took several months to deliver, with the last shipment arriving on Jan. 31, 2012.

Because delivery took so long there was some speculation the gold was not really in the vaults, and that it had been loaned out or was being used as collateral during the euro crisis. It had to be purchased on the open market and that is why it took so long to ship.

Not much was made of this at the time considering the source of the demand and the relatively small amount involved.

Soon after, however, the central bank of Germany's governing body demanded an audit of the gold reserves it had stored at the Federal Reserve Bank of New York. The N.Y. Fed had, historically, been uncooperative with any inspection requests regarding the gold bullion it supposedly held deep in its vaults in Manhattan.

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