Rise in gold price a sign of the times
Faced with a weak outlook for greenback, investors have piled into the yellow metal
The dramatic rise in the gold price in the past week is a sign that investors are very concerned about the health of the international financial system and the global economy.
Investors seek the safety of gold when they are worried that their holdings in shares and currencies, among others, are vulnerable to a weak economy and unsustainable policy decisions. What is weighing heavily on the minds of investors at the moment is the trillions of dollars that the US government — in particular — is printing to pay for the stimulus packages that have slowly dragged its economy out of recession.
The more dollars the US prints, the less each one is worth. The US Federal Reserve has also been keeping interest rates low to get companies investing and consumers buying, but this means that investors holding dollars earn very little on the currency.
Confronted with a weak outlook for the US dollar and still uncertain prospects for the global economic recovery, investors have piled into gold, driving the price up to new records.
For policymakers, the message is clear: investor and consumer confidence, key to a recovery, remains fragile and must be strengthened by a move towards more sustainable economic policies.
