Gold unlikely to be sold to ease sovereign debt, Morgan Stanley economist says


Central Banks to Retain Gold to Manage Debt in Crisis, Morgan Stanley Says

By Glenys Sim
Bloomberg News
Wednesday, August 24, 2011

Central banks, net buyers of gold for the first time in a generation, are likely to retain their holdings even if they need to raise cash to counter an escalating debt crisis, according to Morgan Stanley.

"Once they've sold, that's it, and buying back would be extremely expensive," said Peter Richardson, chief metals economist at Morgan Stanley Australia Ltd., who has studied metals markets for 20 years. "They would rather have the backing of a rising asset within their reserve portfolios than use it to reduce debt."

Gold rallied to a record this week as rising government debt burdens and weakening currencies boosted demand for a haven. Central banks are the biggest gold holders, and Thailand, South Korea, Kazakhstan, Mexico, and Russia have added to reserves this year. The precious metal is the "currency of the world" amid the debt crisis, economist Dennis Gartman wrote Aug. 19.

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Lewis E. Lehrman on How to Solve the U.S. Debt Problem

Lewis E. Lehrman, chairman of the Lehrman Institute, sponsor of The Gold Standard Now project, advises that to reduce the $1 1/2 trillion U.S. deficit, the Republican Party must initiate an investment program.

Working Americans are not saving, which enables the banks to lead the country into a cycle of debt, leverage, boom, panic, and bust.

Lehrman says: Eliminating the budget deficit of a trillion and a half dollars cannot be done overnight. The proposal by U.S. Rep. Paul Ryan was very dramatic -- one Republican called it radical -- but it was not happily received. The solution, of course, is to design an American program for prosperity, because you can solve these entitlement problems with a growing economy. We need a tremendous program of investment, and investment comes from savings. When you pay savers, middle-income professionals, and working people 0 percent at the bank, you are not going to encourage them to save. Then we are left with a bank cycle of debt, leverage, boom, panic, and bust."

To read more and to sign up for The Gold Standard Now's free, noncommercial, weekly report, "Prosperity through Gold," please visit:

"Under conditions of austerity we're going to see a further deterioration of debt," said Richardson in an interview yesterday. "Rising risk argues in favor of holding onto their gold reserves rather than selling them because they've got only one shot at selling."

Immediate-delivery gold, which has rallied 30 percent this year, touched an all-time high of $1,913.50 per ounce yesterday. The metal may reach $2,000 by the yearend, according to the median forecast in a Bloomberg survey of 13 traders and analysts at a conference in Kovalam in South India on Aug. 20.

"The European central banks won't sell their gold because while it may be a means to raise cash, it definitely won't be enough to settle their debts," said Duan Shihua, head of corporate services at Haitong Futures Co., China's largest brokerage by registered capital. "Besides, none of the central banks believes in the currencies of other countries."

In 2010, central banks became net buyers for the first time in two decades, adding 87 tons in purchases by countries including Bolivia and Mauritius, according to World Gold Council data. In the second quarter of 2011, central-bank and government-institution buying rose almost fivefold to 69.4 tons, taking the first-half total to 192.3 tons, the council said last week. Central banks will remain net buyers this year, it said.

Central banks have been "active buyers" of gold in recent months, Edel Tully, an analyst at UBS AG, wrote in a note to clients on Aug. 8. Central banks should also buy platinum as they boost gold holdings amid concern about the global economy, Citigroup Inc. said in a report the same day.

In August 2009, central banks in Europe agreed to a third, five-year cap on gold sales. The European Central Bank and 18 others agreed to sell no more than a combined 400 tons a year through September 2014. Germany, Italy, France, the Netherlands, the European Central Bank, Portugal, Spain, and Austria are among the top 20 holders, according to council data.

"Notwithstanding the worst sovereign-debt crisis, particularly in Europe, where there are very large, concentrated holdings of gold, the central-bank agreement has been striking by the fact that the only people who have been selling have been the IMF," said Richardson, referring to the Washington-based International Monetary Fund.

The IMF sold 403.3 tons between October 2009 and December 2010 as part of a plan to shore up its finances and lend at reduced rates to low-income countries. More than half of that was acquired by central banks, according to the fund.

The debt crisis in Europe which started in Greece has weakened currencies, hobbled economic growth and prompted downgrades of the credit ratings of Greece, Portugal and Ireland. The euro has strengthened against the currencies of 14 of 16 trading partners this year as the European Central Bank bought government bonds to ease financial market tensions.

The Bank of Korea, which purchased 25 tons over a one-month period from June to July, said "holding gold helps reduce investment risks in terms of reserve management," according to a statement this month after the move was disclosed.

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Sona Drills 85.4g Gold/Ton Over 4 Metres at Elizabeth Gold Deposit,
Extending the Mineralization of the Southwest Vein on the Property

Company Press Release, October 27, 2010

VANCOUVER, British Columbia -- Sona Resources Corp. reports on five drillling holes in the third round of assay results from the recently completed drill program at its 100 percent-owned Elizabeth Gold Deposit Property in the Lillooet Mining District of southern British Columbia. Highlights from the diamond drilling include:

-- Hole E10-66 intersected 17.4g gold/ton over 1.54 metres.

-- Hole E10-67 intersected 96.4g gold/ton over 2.5 metres, including one assay interval of 383g of gold/ton over 0.5 metres.

-- Hole E10-69 intersected 85.4g gold/ton over 4.03 metres, including one assay interval of 230g gold/ton over 1 metre.

Four drill holes, E10-66 to E10-69, targeted the southwestern end of the Southwest Vein, and three of the holes have expanded the mineralized zone in that direction. The Southwest Vein gold mineralization has now been intersected over a strike length of 325 metres, with the deepest hole drilled less than 200 metres from surface.

"The assay results from the Southwest Zone quartz vein continue to be extremely positive," says John P. Thompson, Sona's president and CEO. "We are expanding the Southwest Vein, and this high-grade gold mineralization remains wide open down dip and along strike to the southwest."

For the company's full press release, please visit: