LONDON (Commodity Online): Gold now stands at just under $1,100 an ounce, which is a fall from its high of $1,225 an ounce in the recent past. However, Gold prices now is almost 40 per cent higher than a year ago.

And, there are already screams to sell gold because of its fall in the past few weeks. Gold is seen as an inflation hedge, a sort of wealth preserver and starts to look attractive when other investments such as equities and government debt begin to look shaky.

At the annual meeting of the World Economic Forum in Davos, the subject of bubbles arose. When asked about asset bubbles the world renowned George Soros said the ultimate asset bubble is Gold. This has been interpreted in some quarters as a declaration that it is time to get out of gold. But it could just as easily have been an observation on the nature and usefulness of gold compared to the price it always commands.

George Soros went on to say that reducing or stopping stimulus packages too early may threaten to send the world in to the second phase of a double dip recession. He was comfortable with the current levels of national debts and said there was probably lots of room for more in developed countries.

Soros warned that growing political resistance to fresh state borrowing risks pushing the global economy into a double-dip recession next year. Soros said the recovery from the worst recession since the second world war was incomplete, but that fear about sovereign country debt was a barrier to spending designed to boost growth.

There is a general concern with sovereign debt, Soros said. “It is coming under suspicion and it has a political momentum because there is increasing political resistance to allowing national debt to rise. Some countries such as Greece do have deficits of 12.5% of GDP, which is intolerable and has to be reduced. Other countries such as the US and the main European nations have plenty of room to increase their deficits.”

Governments around the world have allowed their budget deficits to balloon since the financial crisis broke in 2007, but Soros said more spending was needed. “I think that since the adjustment process to the recession is incomplete, there is a need for additional stimulus. The political resistance to it increases the chances of a double dip in the economy in 2011 and after that.”

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