Do What Central Banks Do: Own Gold!

Monday, 31 Mar 2014 07:57 AM

By Sean Hyman

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I'm sure you've heard the phrase, "Do as I say and not as I do." But we all know that what people do is what they really believe.

The smoker who is puffing on a cigarette while telling their kids not to smoke is a great example of this. The child thinks, "If that's such good advice, then why don't you take it yourself." Even children know that what we really believe is what we do.

So when I hear central banks talk and they're asked about gold, they downplay gold. They never seem to ever encourage gold ownership in any form (physical bars, coins, exchange-traded funds that track it, etc.).

Editor's Note: Grow Your Savings When The Market Grows Without Risking Principal

In fact, former Federal Reserve Chairman Ben Bernanke will tell you that it's not money. I just watched a YouTube video where Ron Paul asked him this point blank.

Paul went on to ask Bernanke why central banks bought and held gold then. He said "tradition."

Oh, that's a good answer.

So let me get this straight. The United States owns 8,133 tonnes of gold, 71 percent of its reserves in gold . . . simply because of tradition? I don't think so. Good try though!

Why do they hold that much gold? Ok, here's my take on it.

They know they've got plans to continue to devalue the dollar. And they know that many other currencies tend to lose purchasing power during time like a tire with a slow leak. So what do they do to make sure they don't get hurt by their own game? They own gold. And lots of it, too! Gold holds its purchasing power and goes up against a declining dollar.

But is gold just a U.S. central bank infatuation? No. Germany's central bank owns 3,387 tonnes of gold, which is 67.1 percent of its reserves, while Italy owns 2,451 tonnes of gold, which is 65.9 percent of its reserves, and France owns 2,435 tonnes, which is 64.3 percent of its reserves.

So the four top gold-holding governments in the world that report their gold reserves all have one thing in common. They've got around two-thirds or more of their money in gold and only around a third in other currencies like dollars, euros, pounds and yen.

Now I'm not saying to keep two-thirds of your money in gold. But I am saying to do like they do. These central banks know how money works. So you want to be doing the same thing, even though it may be on a different scale, of course.

And buy it on pullbacks. Don't buy gold when everyone's enamored with it. Buy it when it's diving and it seems no one wants it. That way you're not "paying up" to get it. So now that it's closer to $1,300 per ounce rather than $1,900 per ounce, you should check it out. It won't likely stay there long. I think gold could be back in the $1,600s within the next three to six months.

Editor's Note: Grow Your Savings When The Market Grows Without Risking Principal

And as our currency continues to dive and our debts as a nation continue to skyrocket, we will likely see gold set new all-time highs.

God bless!

About the Author: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust.
Click Here to read more of his articles. He is also the editor of Ultimate Wealth Report. Discover more by Clicking Here Now.

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