The Great Debate UK
Spot gold prices are up over 40 percent year on year. Yet, according to the World Gold Council, demand for gold in the third quarter of 2009, dropped by 34 percent year on year. Of course, demand in the third quarter of 2008 was exceptionally high due to the financial crisis. As well, relative to the third quarter average of the five years to 2007, demand for gold in Q3 2009 was down 4 percent.
When confronted with the ferocity of the rally in gold, the fact that the third quarter demand for gold was below the seasonal average is surprising. The dynamic between price and demand suggests some fall in supply perhaps led by increased hoarding.
According to the council mining supply is fairly inelastic.
Supply of recycled gold generally helps stabilise the price, in recent years this has been 28 percent of annual supply. Between 2003 and 2008 central bank sales represented the third biggest source of supply.
It remains unclear what the recent gold purchases from the Central Bank of India means for the demand/supply dynamic of gold going forward.
A month or so ago, there was a lot of talk that risk appetite would be pared back over the coming months. This talk was built around relatively cautious expectations for economic growth in most of the G-10 next year.
The discrediting of the efficient markets theory in the aftermath of the financial crisis appears to have been accompanied with growing support for the view that rather than efficient in nature, financial markets are predisposed towards the formation of bubbles.
-Jane Foley is research director at Forex.com. The opinions expressed are her own.-
If there is one foreign exchange story that will run and run it is the one about the U.S. dollar (USD) and its future as the world’s dominant reserve currency. The discussions on this topic have at least brought some agreement, namely that there is no clear alternative and therefore there can be no quick fix change. That said, much uncertainty remains as to what can, if anything, eventually replace the dollar.
from The Great Debate:
Twenty-four years ago, major nations called for depreciation of the dollar to rebalance the global economy. Now, as another effort at rebalancing looms, the dollar will again bear the brunt -- though officials will try to ensure its fall is less dramatic this time.
from The Great Debate:
It looks bad for the dollar, but looks can be deceiving.
Its sharp decline in the last week has pushed the euro to its highest level in a year and reignited fears that there's only one place for the dollar to go, and that's down.
Rhetoric from influential investors like Warren Buffett as well as big foreign buyers of U.S. debt like China and Russia has fed that sense of doom.