Last Updated : 01 December 2009 at 15:20 IST
Jim Rogers: Budget deficits pushing up gold prices
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What is the real reason behind the historic rise in gold prices? Futures and spot prices of gold across global commodity bourses and bullion markets have been surging for the past few months. Gold price touched a high of $1195 per ounce in the last week of November.
Bullion analysts have been maintaining that depreciating US dollar is one main reason for the big rise in gold prices. Now, global commodities investment guru Jim Rogers says budget deficits in many countries across the world are propping up gold prices.
Is it true? Jim Rogers has forecast that gold prices would zoom to a record $2000 per ounce in the next decade, beginning next year. Rogers, who has been aggressively investing in agricultural commodities, especially in China, has also recently maintained that given a chance to invest in bullion, he would put his money in silver and palladium, and not in gold, as the yellow metal prices are on fire.
But is budgetary deficits spurring gold, and bullion trade in into the high-price tag level?
Here is what Jim Rogers told Business Week:
“Gold’s recent price surge is thanks to budget deficits. “Deficits are going berserk nearly everywhere. Throughout history, printing money has led to weaker currencies and higher prices for real assets.”
“here are many, many pessimists about the dollar, including me. So many pessimists that I suspect there's a rally coming.”
“I have no idea why there should be, but things do usually rally when you have this many bears at the same time. I've actually accumulated a few more dollars.”
There is sense in what Jim Rogers is saying. He should know, as some of his best known books like Adventure Capitalist, Investment Biker, A Bull in China, and Hot Commodities have been eye-opening to the world economy, commodities market and investment ideas.
Budget deficits are ballooning in most of the countries across the world. Global leader United States is hard hit by budgetary deficits; so are countries like Britain, India, Brazil, Russia, South Africa. In fact, the city state of Dubai, that has been proclaimed as the epicentre of modern development is under severe strain these days, thanks to a serious debt crisis.
Dubai, one of the major gold trading centres in the world, along with Mumbai and Beijing, is today going through a major credit default fear. Many say gold price will boom or doom thanks to the credit bubble repercussions in Dubai.
One best example for budget deficit is Britain. British government has been hit hard by budgetary deficits that the country’s finances are said to be in a tight spot.
Read a recent Times Online report on Britain’s precarious economy:
“Britain’s threadbare public finances were thrown back into the spotlight today as it was revealed the Government was forced to borrow £11.4 billion in October to meet its bills - the worst figure for the month since records began in 1946.
Tax receipts collapsed by £4.1 billion compared with October 2008 while spending was £4.5 billion greater as the recession took its toll on corporate profits and consumer spending while welfare payments surged.
Total public sector net debt grew to £829.7 billion, equivalent to 59.2 per cent of total national output, by the end of October. That compares to £695.1 billion and 48.6 per cent a year earlier.”
It is unlikely that countries like Britain will be able to bring down the budgetary deficit in the near future. So will gold price continue to flourish to the record $2000 per ounce, as predicted by Jim Rogers? Let us wait and watch.
David Lew is a bullion commentator with Commodity Online. You can contact him at firstname.lastname@example.org
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