bleakhouse

http://business.timesonline.co.uk/tol/busi...icle6011960.ece Beware the rush to buy a golden nest eggDavid Wighton: Business Editor's commentary If Ecuador views gold as a safe haven, it must be expecting one hell of a storm. The country has nearly doubled its central bank gold reserves in the past three months, according to data from the World Gold Council. Ecuador, which has a per capita GDP of only $7,700, spent an estimated $840million on 28.4 tonnes of gold in a move that has stunned analysts. Most central banks alter their gold reserves by only a few hundred kilograms every year, while Western central banks have been sellers for a long time. Ecuador, by contrast, spent 5 per cent of the Government's total estimated budget in a mere three months. Given that gold is typically bought as a store of wealth and a hedge against inflation and a devaluing currency, Ecuador's sudden rush into the bullion market suggests that its central bank expects its economy to take a battering. The other large gold buyers in the first quarter of this year were Russia and Venezuela. Russia has a policy of buying gold as a way of diversifying its foreign exchange reserves away from the US dollar. There are strategic and political reasons for Russia's antipathy towards the dollar, which are likely shared by Venezuela. Another surprise buyer recently was the European Central Bank, which sold 71.1 tonnes of gold last year but suddenly reversed in January, spending nearly $100 million to buy 3.3 tonnes. This change of heart has been seen by some gold analysts as an indication that the ECB expects the value of the euro to fall this year. If the ECB continues to buy gold, holders of euros should be nervous.

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