Does The Federal Reserve Loan Its Gold? ▸ RESET w/ Vince Lanci (Cameron Hanover)

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HSBC halves gold allocation on the back of Goldman Sachs’ bearish long-term forecast, with rumors abound regarding why Germany’s repatriation of gold reserves will take 7 years to complete; has the Fed loaned out the gold to bullion banks, are there trust issues between the Bundesbank and the Federal Reserve?? We take a look at this and more on “RESET” with Vince Lanci, managing partner at Cameron Hanover/FMX Connect. Starting with HSBC, the bank announced this week that it is cutting the gold allocation in its strategic portfolio in half in favor of equities and treasury inflation-protected securities in a move to reduce volatility. According to Lanci, the most notable and unusual aspect is that they came out so publicly about it and notes that they probably wouldn’t of done us so if their clients weren’t already out. In terms of the statement itself, Lanci says the basic premise is that if the Euro crisis is over and the global economy is recovering, the threat of fiat currencies collapsing is mitigated, thus reducing the need to own gold as an inflation hedge. Furthermore, Lanci notes, the announcement comes on the back of Goldman Sachs’ bearish long-term forecast for gold, declining to $1200 by the year 2018. The analysis assumes that from an inflationary point of view, not much more will happen to give you an upside in gold, and that as the Fed raises rates interest-bearing assets will increase. Despite this, Lanci notes that 5 years is a very long time, during which a lot can happen, and that furthermore it overlooks certain factors, such as the implications of a Fed chairman who is more concerned with employment than inflation, and the possibility of continued inflation despite higher interest rates, which could lead to mistrust. Finally, Lanci gives us his take on the unfolding dialogue between Bundesbank and the Fed. We compare and analyze public statements by both parties, and examine some of the possibilities as to why the process will take 7 years to complete. Kitco News, January 25, 2013.

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