Trace Mayer

Gold Rises, the Dollar Falls: Is This Really a Good Thing?

Trader Mark, You are right that this rise for the monetary metal is just getting started because of the unwinding of the gold carry trade and start of the dollar carry trade. Mr. Alan Greenspan testified twice before Congress saying 'Central banks stand ready to lease gold in increasing quantities should the price rise.' Central banks carry gold in the vault and gold out on loan as the same line item; in effect they report cash and accounts receivables as the same thing. As a result, central banks have only 1/2 to 1/3 of the physical gold as reported on their balance sheets.

This means they hold not 30,000 tons but more like 8-15,000 tons of physical metal. All of this has been thoroughly documented by publicly available documents. To add further pressure the dollar is now becoming the carry trade currency. The unwinding of that massive central bank position will be extremely bullish for the monetary metals priced in their fiat coupons. As the value of their fiat currency coupons are valued like the common stock of nations and because of gold's rise in all major currencies it does not bode well for governments worldwide.

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