Tuesday, February 11, 2014

Gold prices Silver prices Precious metals

Fear of high inflation. Central banks around the world have been aggressively expanding their balance sheets. When this started in late 2008, the consensus view was that this would cause inflation, and perhaps hyperinflation. This led to a surge in the interest in precious metals, and to many high-profile hedge fund managers buying gold to protect against it. The list is long: John Paulson, David Einhorn, George Soros. Fear of flat currencies gold as an alternative currency. "All currencies are in a race to zero" seemed the mantra for much of 2010-2011. The belief seemed widespread that in a desperate quest for growth there would be a  currency war, with the US as the instigator. If everyone was going to debauch their currencies, the word was holding gold which many have come to view as an alternative currency would be the natural area for your money.
Diversification and the dollar overhang. The global financial system has been massively dollar-centric for the past 60 years. Two things, around 2002, catalyzed a major diversification wave away from the dollar. The first was the plugging-into-the-grid of emerging markets . Brazil came back from the brink, China joined the WTO. The newly found growth and macro-economic stability in these countries led to them trusting their home currency more, and needing the dollar in which they were all heavily loaded a lot less. Dollar denominated funds joined the BRIC party, intensifying the decline in dollar demand.
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