By Brandon Clay
Gold is used in jewelry, decoration, and manufacturing, but investors watch gold because it is a store of value – the world’s oldest circulating “currency”, though not as commonly held as it once was. Spot gold prices have jumped around 45% this year as of Friday’s close. In the past 5 years, gold has risen around 160%. In the last few weeks gold went almost parabolic, rising a quick 13% on news that India’s central bank was added to its currency reserves. This is on the back of China’s quiet gold-buying binge.
Ambrose Evans-Pritchard recently discussed how emerging market countries are quietly buying gold en masse. In the past 6 months, Russia, China, and India moved part of their Western currency reserves into bullion. The shiftwas significant enough to push gold prices higher even as equity markets settled down. This year’s gold rush is a result mainly of buying pressure from emerging market banks, not worried retirees buying coins.
So why is this important? The future of the global economy is in the East. Instead of multiple-trillion dollar debts, China, Russia, and India have currency reserves. These governments are slowly moving their reserves from fiat currencies like the dollar to more stable stores of value like gold. At the least, it’s a temporary sign that BRIC confidence is waning in the US government’s ability to pay off debt. They are, in essence, shorting the US economy and exploring other stores of value besides the dollar.
Maybe you should do the same.