A lot of these sales took place many years ago when the price of gold was $500--1,000/oz. My point is that the actual holdings these banks retain are much smaller than what appears on their balance sheets. Of course, they would want to get that gold back to spare the embarrassment if the euro blows up. This is why I have suggested that even if there is one more selloff in gold, the declines will be cushioned because the central banks will be bidding to buy back what they sold forward.


I would say there could be another 400--500 tons liquidated, which would easily be absorbed by the central banks. Ultimately, this slow, ticking time bomb will resolve itself with a much higher gold price.


Our general feeling at Pinetree that gold is slowly being re-monetized has driven our investment decisions. Relative to the metal, gold equities are at such valuation extremes that it makes it a much more compelling valuation relative to copper, iron ore or some of the base metals. But we've been bullish on gold since the early 2000s, based on the positive supply/demand fundamentals. All of those factors are part of the decision to increase our overall exposure.

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