KATHMANDU: Gold is not just a metal, but a reference for determining the value of other currencies, without which the financial universe seems impaired. There are very serious issues imminent in Europe and across the world which has questioned the policymakers’ stance on the crisis. The world seeks resolutions and the tools being used do not seem to stimulate the world economies. The recent trends in commodities that witnessed the prices of corn soaring and oil prices rallying have left investors wondering whether it is time for gold to regain its lustre.
Europe, where serious issues are looming, has been borrowing heavily from the International Monetary Fund (IMF). Not only that, they are now heading towards Canadian and Asian deep pockets. The irony is that even after the bailouts, the governments remain reluctant to nationalise the banks they have rescued. The alternative for another quantitative easing does not seem optimal in Europe which has strengthened the US. Despite the precautionary measures, the government has defaulted and the disease only seems to spread like an epidemic.
The investors seem to be waiting for some economic or political market events. There are two major components of gold prices; the monetary and the emotional factors. The first one is obvious and the latter is driven by fear of the collapse of dollar. The decisions and moves are likely to be catalysed by yet another crisis in Europe or announcement by the US of a major monetary programme. At
present, investors seem too busy chasing high-yielding stocks because of the strengthened dollar. Until they are given any serious reason
for concern, it is quite obvious that the lustre of gold will be ignored.
Sarcastically, the US has borrowed heavily, not only from the IMF but also from China. The major concern here is — will they be able to maintain their proportion of debt and equity? The US is slowly losing control over its institutions because of their indebtedness. The government only keeps printing more money to keep themselves alive ignoring the other aspects of their actions; their devaluation and of course the inflation. Risk is back and debt on debt does not work. What if IMF decides to revalue gold upwards? Where will the dollar be in the near future?
No doubt, the decision of investors will be ignited only by the confirm-ation of significant volume — the value of USD and any major headlines involving Europe crisis.
(The author is assistant manager at the business development department of Mercantile Exchange Nepal. He can be contacted through firstname.lastname@example.org)