Inflated gold price heralds the next bubble
Dollar devaluation could cause a serious crash.
* By Arno Maierbrugger, Deputy Business Editor, Gulf News
* Published: 00:00 October 15, 2009
Dubai: The current investment patterns on the major global stock and commodities exchanges are a cause for concern that a new bubble on the markets has already built up.
Gold prices bouncing to new record highs, followed by oil and other commodities, are a clear sign of deep mistrust of investors in the weak dollar and rather not an indication for true commodity values.
The gold price will stay high and even climb higher as long as interest rates remain low - this is a dangerous side effect of central bank policies all over the world.
As investors continue to seek refuge in precious metals, the dollar price will dive further. And under the current circumstances, there is no reliable system of checks and balances on the markets to prevent the greenback from eventually crashing.
Most of the debt and all other toxic assets in the world are dollar dominated, and as more defaults occur on those debts, the more the dollar will devalue.
And it is not a big help for the greenback that economic powers like Russia or China frequently announce plans to switch to alternative currencies such as the euro.
Some analysts expect the gold price to rise to at least $1,300 by the end of the year, and after this level is surpassed, gold could easily rise to $2,000 or even $3,000 per ounce. Over the same period, dollar dominated value and wealth will continue to shrink.
"Economically, the US is in a continued downturn," says Matthias Grabbe, analyst at German private bank BHF. "And with it, its currency is deflating."
For all countries with high dollar reserves the greenback's price development constitutes a high risk for which a solution must be found - ideally before a new bubble is bursting.
The US is currently paying the price for the globalisation of its economy. Outsourcing to low-cost countries has triggered a huge outflow of money, especially to China, which is now striking back in a shopping spree based on a deflated greenback.
Dollar devaluation could cause a serious crash.
* By Arno Maierbrugger, Deputy Business Editor, Gulf News
* Published: 00:00 October 15, 2009
Dubai: The current investment patterns on the major global stock and commodities exchanges are a cause for concern that a new bubble on the markets has already built up.
Gold prices bouncing to new record highs, followed by oil and other commodities, are a clear sign of deep mistrust of investors in the weak dollar and rather not an indication for true commodity values.
The gold price will stay high and even climb higher as long as interest rates remain low - this is a dangerous side effect of central bank policies all over the world.
As investors continue to seek refuge in precious metals, the dollar price will dive further. And under the current circumstances, there is no reliable system of checks and balances on the markets to prevent the greenback from eventually crashing.
Most of the debt and all other toxic assets in the world are dollar dominated, and as more defaults occur on those debts, the more the dollar will devalue.
And it is not a big help for the greenback that economic powers like Russia or China frequently announce plans to switch to alternative currencies such as the euro.
Some analysts expect the gold price to rise to at least $1,300 by the end of the year, and after this level is surpassed, gold could easily rise to $2,000 or even $3,000 per ounce. Over the same period, dollar dominated value and wealth will continue to shrink.
"Economically, the US is in a continued downturn," says Matthias Grabbe, analyst at German private bank BHF. "And with it, its currency is deflating."
For all countries with high dollar reserves the greenback's price development constitutes a high risk for which a solution must be found - ideally before a new bubble is bursting.
The US is currently paying the price for the globalisation of its economy. Outsourcing to low-cost countries has triggered a huge outflow of money, especially to China, which is now striking back in a shopping spree based on a deflated greenback.
