Russia’s central bank takes note of GATA and gold price manipulation [GATA]


I would like to thank the conference organizers for this opportunity to share my thoughts on such a complex, even mythical subject as gold and the prospects for the near and medium-term. I assume that the request was made for one simple reason: that I, as a senior executive of the Bank of Russia, should know more than other ordinary mortals.

In general, this logic is flawed, although there is sense to it: It is necessary to understand the central bank’s perspective regarding this precious metal, particularly given that it does have approximately 500 tonnes of the metal in its vaults.

It is from this perspective, that of central bank, that I intend to base my presentation. I hope you can understand that it is quite a specific topic, management of gold reserves. This is distinct from the views adopted by gold prospectors, industrialists, investors, speculators, and ordinary purchasers of jewellery.

For the central bank, the gold stock is the international payment reserve for the whole country — for the state authorities, private companies and corporations, as well as individual citizens. Like any reserve, it needs to be conserved, in terms of both actual physical form and its value. To a lesser extent, we need to be concerned about its liquidity, or more precisely, market price developments.

The central bank’s duties in managing gold reserves may therefore not seem particularly onerous to a commercial trader, who has to close dozens of transactions daily to achieve results by the end of the day.

In this there is a grain of truth. The central bank’s specialists do not have to follow real-time price movements every day and every minute, or react instantaneously to every little twist and turn in the market. We are concerned with other, less immediate problems regarding gold. In a figurative sense the central bank’s attitude can be compared with that to a giraffe. I have in mind an image of an animal that suggests certain ambiguity, at least in the Russian language.

On the one hand, when Russians say that someone is reacting like a giraffe, they are highlighting that person’s slow reaction. It even suggests a degree of slow-wittedness. On the other hand, the evident magnificence of the animal commands respect. “The giraffe is tall, and he sees all” — the words of the Russian bard Vladimir Vysotskii are well known throughout Russia.

With this allegory in mind, I would like to mention the issues concerning gold which fall within the “giraffe category” — or more formally, present concerns of a central bank.

These are several: the volume of actual precious metal stock, both in absolute and relative terms (essentially, the optimum component of the metal in total monetary reserves); methods of controlling the stock; ensuring both security and availability for liquidity purposes and at the same time optimizing income-earning potential. All these issues reflect very practical concerns.

It may seem strange but all bear direct relation to a problem that is often considered purely theoretical: What is gold currently, and what will it be tomorrow? Real money with intrinsic value? A raw material? A cash commodity that has lost some of its monetary functions? If so, what are the prospects — complete loss of gold’s role or a restoration of lost functions, in one form or another?

 

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