Friday, September 29, 2006

Riksbank Sells Gold-Again

Last year I reported how the Swedish Riksbank sold of 10 tonnes of gold (320,000 ounces) at a value of $133 million.

But as the price of gold have since risen 45%, from $416 to $600 per ounce, this means that these 10 tonnes they sold are now worth $192 million. By contrast, the bond yield the Riksbank received on the bonds they bought with the proceeds from the gold sale was less than 5%.

Now the morons at the Riksbank want to repeat the mistake, and again sell 10 tonnes of gold.

While this is not likely to quite as lousy deal as the last time since they're now getting a lot better price than the last time, the Riksbank is again showing a unwarranted faith in the inflation-"fighting" credentials of other central banks. With bond yields being as low as they are, government bonds remain a lousy investment choice. I therefore predict that this will be a bad deal for the Riksbank, although again probably not quite as bad as the last time.

One can moreover note that this move will contribute (albeit only marginally) to pushing down bond yields and the gold price, both of which seemingly indicates lower inflationary expectations from financial markets, something which is good for the Riksbank's fellow central bankers.


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