Bank of Mexico boosts its holdings of gold

Gold bars are displayed at a shop in Tokyo.

Tess Vigeland: We know all that glitters is not gold, but is gold the new dollar? Countries around the world have been gobbling up bullion in recent years as a form of financial security.

The latest is Mexico. Mexico's central bank bought about $4.5 billion worth of gold in February and March. And as Marketplace's Jeff Tyler reports, it's helping to push gold to record highs.

Jeff Tyler: Gold is becoming the security blanket for central banks around the world. In February and March, Mexico's central bank bought almost 100 tons of gold. Joung Park is an equity analyst at Morningstar. He says these kinds of purchases have a big impact on gold prices, which are now trading near a record high of $1,500 a troy ounce.

Joung Park: Central banks are definitely a huge swing player in the market, given that they tend to buy in the order of hundreds of tons at a time.

Park thinks prices will fall in the next couple years as individual investors turn away from gold.

But some other market-types say demand for gold is not going away. Olivier Garret is CEO of Casey Research, which does investment research and has direct investments in gold. He points to purchases by India and others as an international trend.

Garret: We have Russia buying gold. We have most countries in South America. China, which is the largest producer of gold, is no longer exporting gold. It has doubled its reserves in the last six years. What it says is that those countries are really no longer trusting the major paper currencies -- and specifically the U.S. dollars.

Some countries, including China, have called for the creation of a new international currency. But Garret doubts that gold could serve as the basis for a currency. He says central banks are accustomed to printing money whenever they want. And you can't print gold.

I'm Jeff Tyler for Marketplace.

About the author

Jeff Tyler is a reporter for Marketplace’s Los Angeles bureau, where he reports on issues related to immigration and Latin America.
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Just as speculation in the stock market is much of the time based on the anxieties of the investors, history has proven people's belief in the ability of a nation to weather it's finacial storms can determine financial strength,solvency and credibilty. If ever a country is seen as finacially weak,serious decline may begin. It is important that we build our precious metal resources as well as paper currency.

"... [C]entral banks are accustomed to printing money whenever they want. And you can't print gold." That's rather the *point* ...

This is an amusing story, to say the least. All these central banks that borrowed and bought dollars are now attempting to retreat from it. Oh, but here's the hilarious part: what are they valuing the gold they purchase in? Oh, right, DOLLARS. Maybe it's time some bankers should read some Einstein and the Theory of Relativity.

Ned D, yes you have to trade the gold to get things you can use, just as you trade dollars to get things you use. After all you can't make a dollar omelet or put dollars in your gas tank. The difference is that people and nations are getting tired of the US gov making the dollar worth less each year. (The Fed's stated goal is to see the US dollar worth 18% less in ten years--2% inflation rate)
Gold, silver, and other physical assets can't be created out of thin air, that is why they maintain their value.
For example, a home in 1974 cost around $21,000 or 133 oz of gold. In 2010 the average home is about $170,000 or around 133 oz of gold.
Gas in 1964 was around $0.25 a gallon. Today that same 1964 quarter would buy two gallons of gas as it could be sold for $8.50. We would expect modern efficiencies to lower the cost of goods and services over time, instead because of government inflation we pay more to get less.
The US gov is spending far more than it brings in, the interest is eating up more and more every year. If things don't change, they will collapse. A nation that has a large amount of gold and silver and oil, etc stored up will be better able to survive that.
The real question is not why is Mexico doing this but why isn't the US?

You can't make a gold omelet, nor can you put gold in your gas tank. Eventually you've got to trade the gold for something you can use. At which point the price can change.

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