"Gold fever" once again sweeping across world

15:56, December 04, 2009

The price of gold, like that of crude oil, is expected to continue to maintain upward because of uncertainties now affecting the world, and this a consensus shared by economic optimists. And pessimists, however, note that the gold price has risen steadily and will be turned into a "bubble". Hence, the bursting of "gold bubble" is not far off since the global economy has improved and investment keeps diversifying..

The international gold price topped the 1,200-US-dollar an ounce mark on Wednesday, hitting an all time high. Trading markets worldwide, from the United States to Europe, and from Asia to Australia, are all resounded with exclamations that "the price of gold, going up! going up! and again going up!"

Gold price rose to 1201.63 US dollars on London Bullion Market on Wednesday, whereas in the New York Mercantile Exchange, February gold futures contract surged 16.70 dollars an ounce to 1216.90 dollars an ounce; Singapore gold spot price rose as much as by 1.6 percent to 1215.85 dollars an ounce.

So, the world gold price has risen nearly 40 percent so far this year. Nevertheless, it really does not deserve a great surprise even it will uplift further. Such a global or universal heated boost for gold price transcended the psychological barrier of 1,200 dollars an ounce, which can not but cause widespread concerns. Analysts believe that the re-emergence of "gold fever" is ascribed to such causes as a weak dollar and price potential, which is spurred by central banks reserves and promotion by investors.

Although world economy has reportedly been heading for recovery since the early later half of 2009, the current economic recovery is not relatively strong anyway with a couple of hidden risks involved in other areas of investment, relatively speaking. Due to a possibility of inflation in the course of economic recovery coupled with the dollar's continued depreciation, buying gold has become a reliable means to resist or overcome risks.

Central banks of all nations have been working hard to increase their gold reserves this year. India, known as a "great gold user", purchased 200 tons of gold in November, which drastically pushed up gold prices 13 percent overnight. Meanwhile, Russia and other nations acted likewise.

While central banks all over the world have striven to replete their gold reserves, old-age pension managers and individual investors also seem to see great potential of gold price in years ahead and join the ranks of gold buyers.

Weak dollar is a direct incentive. Although American economy started to pick up as of the third quarter of this year, the U.S. government and Federal Reserve, nevertheless, have left their "weak dollar policy" unchanged, in order to stimulate exports and make domestic enterprises more competitive.

The greenback has slumped 8.5 percent in 2009 against a whole package of major Western currencies, and its exchange rate for euro, Japanese yen and British pound will likely to go on weakening. So, gold in trading on the global market would naturally be highly priced in terms of U.S. dollar.

As a matter of fact, global economy is not in steady growth, as the world situation can have variables that could hardly anticipate things at present. The United States announced a 30,000-strong troop surge last Tuesday. Then, can it get out of Afghan quagmire as President Barack Obama has said. So, the question of whether the nation is able to get out of Afghan dilemma remains unknown.

What really more worrisome is that incessant bombings and widespread terrorist attacks that have occurred daily in Afghanistan, the complex nuclear enrichment program in Iran and the nuclear issue on the Korean Peninsula, which can inflict geopolitical issues of global concern at any time. In the field of economics, the Dubai debt crisis erupted last week again gave a stark warning to the world. In such circumstances highlighting both risks and upheavals, gold has been taken unanimously as a reliable financial product against possible risks thanks to its longstanding advantages.

On "gold fever" across the globe, optimists say that the gold price advance is likely to continue and it is very much like crude price. Meanwhile, pessimists deem that gold price has been on a steady rise and would apparently be turned into "bubbles". But "Gold price will decline to less than 1,000 US dollars in the not distant future," said Professor of economics Robert Mundell at Columbus University in New York City, who had been awarded the Nobel Prize in 1999 "for his analysis of monetary and fiscal policy under different exchange rate regimes as well as his analysis of optimum areas.

In the sphere of global oil prices, crude future price plunged to a four-year low a full year ago, on Dec. 5, 2008; it proceeded to settle at 66.31 dollars a barrel on the New York Mercantile Exchange roughly half a year later, on May 29, 2009, and stays around 75-80 dollars a barrel in November 2009.

By People's Daily Online and contributed by PD resident reporter in Britain Wang Rujun