-- Posted 25 January, 2006 | |

www.dailyreckoning.com: The World’s Central Banks Must Keep Buying Gold

Baltimore, MD - As central banks around the world consider bolstering their gold reserves, one analyst says their only choice is to buy more. And prices will continue setting records as a result.

Gold prices have already soared thanks in part to rumors and announcements from central banks. In the beginning of the year the metal jumped $6 an ounce in a single day after China Galaxy Securities Co., China’s largest brokerage firm, suggested the Chinese government should add as much as 2,400 tonnes to its reserves. This follows announcements that the Russian and South African central banks would like to increase their gold reserves as well.

According to Justice Litle, a commodity market analyst and frequent contributor to The Daily Reckoning, this trend will continue for some time. And it has nothing to do with the supply-and-demand fundamentals of gold.

“Central banks around the world are sitting on mountains of U.S. dollars,” Litle explains. “While Americans might consider that a pile of assets, foreign leaders can only see it as a giant pile of liabilities.”

As he points out, the U.S. government alone faces a $331 billion budget deficit while Americans are sitting on $2.1 trillion of debt.

“The deeper into debt America goes, the less value its currency becomes,” says Litle. Faced with a large supply of a wasting asset, countries “would be crazy not to shovel it into gold as fast as they can.”

Litle believes we can expect to see more central banks adding to their gold holdings in the months ahead. And since the world’s central banks have such a big influence on the gold price, we can expect the gold price to shoot up as a result.

“This gold rally could have some very long legs,” Litle says.

For more from Justice Litle, see http://www.dailyreckoning.com

Brought to you by Agora Financial, and written by the NY Times bestselling authors, Bill Bonner and Addison Wiggin, The Daily Reckoning is a daily, free e-letter that weaves information about the financial world, investing and everyday life into an educational and entertaining format that has been engaging their readers for over six years.

SOURCE www.dailyreckoning.com