Gold rush and shuffling economies

Posted: 2010/09/20 in Economy
Tags: , , , , ,

Gold rose to a record in London and New York today as a weaker dollar and concern that the recovery may be faltering boosted demand for the metal as a protection of wealth. This is the reason investors are putting more of their money into commodities – and gold in particular.

All because there is an uncertain outlook for two of the world’s major reserve currencies –the dollar and the euro– now provides a spur for central banks to buy gold.

The dollar is looking vulnerable technically. The continuing dollar weakness is likely as the Obama administration is forecasting this year’s deficit will hit a record $1.47 trillion and $1.41 trillion next year. Woopie, Mr. Hope. Are the Kool-Aid drinkers sober yet?

Gold prices the past weeks forecasts that central banks will be net buyers of bullion this year for the first time in two decades, the clearest sign of the rehabilitation of bullion after the financial crisis.

This shift marks a turnround after heavy disposals by European central banks over the past 10 years, when gold was seen as a non-yielding unattractive asset. Monetary institutions then swapped their bullion for yielding sovereign debt.

Gold prices have pushed to a fresh record amid forecasts that central banks will be net buyers of bullion this year for the first time in two decades, the clearest sign of the rehabilitation of bullion after the financial crisis.

Meanwhile, the International Monetary Fund sold 10 metric tonnes of gold to the central bank of Bangladesh on Sept. 7, the first to a central bank since last November’s sales.

The IMF said the sale raised $403 million, adding that it was part of 403.3 tonnes approved for sale by its executive board in September 2009.

Last year, IMF fund has already sold 212 tons of gold to the Reserve Bank of India, the Bank of Mauritius and the central bank of Sri Lanka, all in November. The sales are part of plans adopted last year to diversify the fund’s sources of income and to increase low-cost lending to poor countries by up to $17 billion through 2014.

The sales are part of plans adopted last year to diversify the fund’s sources of income and to increase low-cost lending to poor countries by up to $17 billion through 2014.

There is definitely a lot of shuffling around the world these days…so hold on to your seats, folks.

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