Executive Summary

• Central planning are colluding – but failing – to diminish world demand for bullion
• The BRICS are planning a future of less dependence on the West, and gold will play a role
• The East sees gold as "on sale" at today's prices
• Analysis shows they're right; gold is much cheaper than it should be compared to pre-QE levels

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In Part I, I went through the history of Asian demand for gold, starting with the Arabs’ need to find a home for increasing quantities of petrodollars from the late 1960s onwards. My conclusion was that there is very little bullion in private ownership left in the West, there is an unmanageable short position in the unallocated gold accounts held with the bullion banks, and the bulk of accessible monetary gold controlled by central banks is already leased and has been sold into the market to satisfy Asian demand.

The result is that merely suppressing the gold price to enhance credibility of the dollar as a reserve currency is no longer the problem. The problem is now one of crisis management. Western central banks have done everything they can, even persuading the Reserve Bank of India to suppress India’s gold imports. We know this is most probably the case because the Indian authorities have already learned the lesson that gold imports could not be controlled, which is why the Gold Control Act was abolished in 1990. Furthermore, the newly-appointed RBI Governor, Raghuram Rajan is an ex-IMF chief economist, has spent a significant part of his career in the U.S., and is therefore likely to be fully sympathetic with Western central bank objectives. He appears to be the West’s place-man.

Other than the question of Indian demand, there are two possible reasons for the flows of gold from West to East: geo-political, whereby one or more Asian nations are deliberately creating a potential crisis for the West, and different valuation criteria. Both are true and should be considered in turn.

Geo-politics

China and Russia, as ex-communist failed states, have much in common besides their borders.