Asian Buyers to Support Gold Price as Balance of Power Shifts


"Today the two most important currencies in understanding the gold price are the renminbi and rupee"

Gold is likely to remain becalmed in the short to medium term, as investors wait for significant signs of inflation is coming back into the system. But, in the longer term, a better understanding of Asian economies is needed to fully understand where gold is going.

Investec investment strategist Michael Power says that while the dollar is likely to remain the most important currency cross to look at when considering the price of gold, it is becoming less and less important.

He says, while against its usual crosses, such as the pound and the euro, the dollar is looking fairly good, against currencies such as the Brazilian real and the Indian rupee, the dollar is looking rather sick.

"Today the two most important currencies in understanding the price of gold are the renminbi and the rupee because between them, [China and India] are now consuming well over 40% of annual production and. . .you have to look at the price through the eyes of the people that are buying the stuff.

"We as investors often assume that we are the people that control the gold market and I think that is a little na´ve and a little arrogant to be honest."

He adds that, "given the amount of debt that is being created in the U.S., it is hard to see that the level of funding they need to pay for that debt is going to be matched by inflows of money from offshore to buy that debt. And, I think the Asians are going to find better things to do with their savings than invest it in T-bills as will the other net saving regions in the world like the Middle East. So I do think we are going to see the USD decline both in value and status over the next 10 years."

The West is going to be forced by circumstances to begin more and more to live within its means.

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