Several factors have contributed to the strong price rally in the precious metals sector in the last few weeks. These primarily include the ever-worsening debt problems in Europe and America, growing concerns over a double-dip recession in the United States and fears of inflation in many Asian countries – above all in China. While the gold price climbed to a new all-time high of $1,913 per troy ounce in the course of yesterday´s trading session, the platinum price also reached a three-year high of $ 1,910 per ounce. Silver traded at around $44 per ounce, not far of its all-time high of $50.
Moreover, many market participants seem to be concerned by the news that Venezuelan president Hugo Chavez intends to repatriate the South American country’s gold reserves from around the world. Chavez plans to bring back 211 metric tons of gold – currently stored in vaults in the United States, Canada and several European countries, including 99 metric tons stored by the Bank of England. The request from Venezuela’s central bank chief Nelson Merentes has already been submitted in writing to the Bank of England. This development is adding to the already high level of uncertainty in global financial markets.
In other news, according to Stephen Roach, non-executive chairman of Morgan Stanley’s Asia division, China will likely reduce its large scale purchases of Treasury bonds soon. Roach told cnbc.com in an interview that China has to fundamentally change its business model. The country’s communist leadership should mainly pay attention to stimulating domestic consumption at the expense of exports. If China reduced its dependence on export business due to sinking demand in the United States and Europe, there would be no more reason for China to be engaged in large scale purchases of US Treasury bonds in the future. This could soon lead to rising interest rates in the United States, providing additional problems for the already cash-strapped US government.
After the rating agency Standard & Poor's (S&P) downgraded America’s AAA rating to AA+, Fitch reaffirmed the US government’s rating quality – just as Moody´s Investors Service did last week. However, Fitch said that America’s triple-A rating could only be kept if the US government started to implement adequate austerity measures as part of an effort to reduce the country’s enormous budget deficit.
S&P’s US downgrade significantly contributed to the stock market rout in international equity markets over the last few weeks. Gold, platinum and silver could continue to benefit from weakness in equity markets, as investors increasingly seek out assets which do not have any credit risk. More and more investors are rediscovering the monetary nature of gold and silver in times of persistent turmoil in global currency and financial markets.
