GOLD PRICE NEWS - The gold price rallied Friday morning with a stronger U.S. dollar as the price of gold renewed its ascent toward its all-time high set on Monday. The gold price is now up 3.0% month-to-date and has increasingly shown price action independent of its customary dollar/euro currency cross. The price of gold has rallied during sessions when the dollar has traded higher, and also gained following reports indicating low levels of inflation. The gold price has set a series of record highs against every major currency in 2010. In short, the gold price has itself become a major currency with its own set of fundamentals.
One reason for the ascension of the gold price to major currency status has been the continuation of crisis-level monetary policy by the developed western economies. Deployed in March 2009 to counter a global financial panic, the policies succeeded in their aim to return the markets to some sense of normalcy. Central bankers have persisted in continuing low interest rate provisions and hyper-liquidity measures to restart the stumbling global economy, but the policies have had virtually no success in promoting economic growth, nor have they been able to head off the debt crises which are emerging in the euro-zone.
It is against this backdrop that the world’s largest economies - the G20 - gather in Toronto, Canada, this weekend to once again deliberate over the path of the global economy. Since the G20 summit was last convened, central bank balance sheets have ballooned - in many cases with toxic assets - under mandates to reliquify their banking systems. The European Central Bank - in a last ditch effort to save the euro - announced a $1 trillion aid package last month that includes even more asset purchases. Though ostensibly proposed to once and for all quell the storm surrounding the Greece debt crisis, it was really aimed at salvaging European banks that faced their own funding crisis over the quality of their assets.
Above all this, the G20 nations - save for Germany - insist on the need for additional fiscal stimulus. The German government has cut its own budget though it does not face a crisis with respect to its debt. Instead of accolades for maintaining some semblance of fiscal discipline, the country has been subject to criticism for the policy and to diplomatic coercion to abandon it. The definition of financial responsibility has been turned on its head.
With deficits and debt-to-GDP levels spiraling out of control, fiat currencies are drifting toward shoals which will render them worthless. Investors are responding to the threat by taking positions in the gold price. Despite talk of bubbles, poor Indian jewelry demand, and the widely-believed notion that inflation cannot take hold under current economic conditions, the gold price continues to attract adherents to its utility has a bulwark against the ravages of prevailing central bank policy.
