Gold price——————– Will the upward trend continue? - By: casandra

Decline in the US economic growth and rise in growth of other nations including Brazil, Russia, India and China (BRIC) nations: before the start of 21st century most of the countries were dependent on Us retail demand of their growth. Europe export nearly one third of its goods and services to the US. Japan and other countries also depend on the US demand. Higher growth rate and subsequently higher demand from China, India and from other nation has result that world less dependent on the US economy for growth. Indian economy is more dependent on the domestic demand and less dependent on the export. Higher commodity and energy prices have benefited Russian and Brazilian economy more than any other country.

Indian GDP growing around 9% while Chinese GDP growth is over 10%. The world is now less dependent on the US economy for growth than it was at the beginning of the century.

Structural decline of the US dollar and search for investment away from US dollar: The US economy needs more than $2 bn in day of foreign investment to run its economy.

Its trade deficit and budge deficit are on the rise. Foreign investors are apprehending of investing in the US dollar and are investing in non-dollar investments.

Even retail investor are investing in instrument which are not priced in US dollars. AS a result, emerging markets equities like India, China are witnessing continuous rise in foreign portfolio flows. BSE Sensex has risen nearly 320% between 2003 and 2007, while the US dollar Index has fallen 25% between 2003 and 2007. The spot gold risen nearly 160% between 2003 and 2008, whereas Dow Jones has risen just 59% between 2003 and 2007.US dollar’s decline and rise of gold prices is due to the slowdown of the US economy.

Continuous rise in physical demand for gold and lack of new mine supplies: global gold mines production peaked in 2003 and is experiencing gradual decline currently. The problem are best typified by the world’s largest producer, South Africa, where mines faces decline ore grades and rising in the cost s as they push the extreme depth of

2.5 miles down.

Indian demand for gold continuously increase when the price touch to $900 per ounce. The start of gold future trading in shanghais stock exchange also increase the demand for gold in China. The US subprime financial crisis had a direct impact on the global gold market in the third quarter of 2007, as safe haven investors spurred record inflow into gold exchange traded funds helping to push total demand to a new record of $20.7 bn, up 30% a year earlier.

Central banks of some of the countries like Russia, China and some oil producing nation convert there dollar into gold reserve on invest in other currency like Euro.

About the Author

Casandra Parker has written many financial posts concentrating on personal finance solution that help people to make financial decision in right direction.

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