Gold and Geopolitical Tensions
The last few weeks the situation in Egypt has been dominating the headlines and making the markets even more volatile than normal.
The gold price has been moving very rapidly since the uprising started.
This shows the important role gold is playing in traders portfolios in times of uncertainty.
They are trying to protect themselves with gold as it traditionally moves inversely to other equities.
The tension in Middle-East might keep investors on their toes for quite some time as Jordan and Yemen are very close to losing the control of their people too.
Investing in gold will offer a safer option to invest one's money than stocks as long as the inequalities between people keep causing problems in Middle-East.
According to bullion dealers in Hong Kong and Shanghai the physical demand for gold has been unbelievable before Chinese New Year celebrations.
Chinese people traditionally buy gold as a New Year's gift and because of the emerging inflation pressure the hunger for the metal has been at record high ahead of the holiday.
Traditionally the physical demand calms down after the Chinese New Year and won't pick up until early September but currently the inflation pressure is likely to stop any major falls as governments are pretty helpless in front of market forces.
In a healthy economic environment inflation is caused by increasing consumer spending and can be controlled by raising interest rates.
Presently inflation is caused by rising commodity and food prices, not people spending too much.
This causes politicians a dilemma as rising interest rates would cool down the commodity prices but it also would kill the emerging recovery.
Both the ECB and the FED have stated that they will not raise interest rates until the recovery is on firmer ground and the economy is adding far more jobs than it currently is.
Recent employment data from the U.
S is backing up this as the country is not creating new jobs fast enough to support the recovery.
ECB is expecting inflation to be 1.
8% in 2011 which is below the 2% target and would ease the pressure to raise interest rates in the Euro Zone.
As central banks are not currently able to do anything to cool down inflation without affecting the recovery, commodity and food prices are likely to keep rising.
Some analyst suggest that rising food prices were the bottom reason for the riots in North Africa as in most of these countries over 50% of family income goes to grocery shopping.
As food prices keep rising, it is likely that the anxiety and tension keeps spreading to other developing economies.
Resent economic statements from America and Europe are suggesting that the recovery is picking up but financial markets remain doubtful about it and especially Asian investors are keener than ever to buy gold as an inflation hedge.
Whether the western world will follow until it's too late will be seen in the next few months but a lot of so called smart money from Asia is buying all the bullion they can get.
The gold price has been moving very rapidly since the uprising started.
This shows the important role gold is playing in traders portfolios in times of uncertainty.
They are trying to protect themselves with gold as it traditionally moves inversely to other equities.
The tension in Middle-East might keep investors on their toes for quite some time as Jordan and Yemen are very close to losing the control of their people too.
Investing in gold will offer a safer option to invest one's money than stocks as long as the inequalities between people keep causing problems in Middle-East.
According to bullion dealers in Hong Kong and Shanghai the physical demand for gold has been unbelievable before Chinese New Year celebrations.
Chinese people traditionally buy gold as a New Year's gift and because of the emerging inflation pressure the hunger for the metal has been at record high ahead of the holiday.
Traditionally the physical demand calms down after the Chinese New Year and won't pick up until early September but currently the inflation pressure is likely to stop any major falls as governments are pretty helpless in front of market forces.
In a healthy economic environment inflation is caused by increasing consumer spending and can be controlled by raising interest rates.
Presently inflation is caused by rising commodity and food prices, not people spending too much.
This causes politicians a dilemma as rising interest rates would cool down the commodity prices but it also would kill the emerging recovery.
Both the ECB and the FED have stated that they will not raise interest rates until the recovery is on firmer ground and the economy is adding far more jobs than it currently is.
Recent employment data from the U.
S is backing up this as the country is not creating new jobs fast enough to support the recovery.
ECB is expecting inflation to be 1.
8% in 2011 which is below the 2% target and would ease the pressure to raise interest rates in the Euro Zone.
As central banks are not currently able to do anything to cool down inflation without affecting the recovery, commodity and food prices are likely to keep rising.
Some analyst suggest that rising food prices were the bottom reason for the riots in North Africa as in most of these countries over 50% of family income goes to grocery shopping.
As food prices keep rising, it is likely that the anxiety and tension keeps spreading to other developing economies.
Resent economic statements from America and Europe are suggesting that the recovery is picking up but financial markets remain doubtful about it and especially Asian investors are keener than ever to buy gold as an inflation hedge.
Whether the western world will follow until it's too late will be seen in the next few months but a lot of so called smart money from Asia is buying all the bullion they can get.
Source...