With a string of bad economic news once again gripping the world, gold has continued to glitter better than ever. As per reports last coming in, gold prices in India touched a new high of Rs 19,050 per 10 gms yesterday. While the yellow metal jumped in the international markets, the depreciation of the rupee against the US dollar further helped its cause.
Gold, easily the asset of the last decade, had a few quiet months up until recently as it was being widely anticipated that the stimulus efforts taken by Governments across the world are beginning to bear fruit. But it was not to be. After the US, it is now the Euro zone that is threatening to buckle under the load of Government debt. This is making investors seek the relative safety of gold.
The latest in the string of bad news was the downgrade of Spain's debt by the ratings agency Fitch. Furthermore, with news from China also not encouraging, what with its economy showing signs of slowing, looks like gold may continue to inch higher. Hence, if you haven't yet made the yellow metal a small part of your portfolio, it may be not too late to do so currently. After all, as someone said, gold is a speculation alright but it is a speculation against a certainty. And that certainty is the debasement of paper currencies.
Coming soon: US$ 237 bn write-offs at Euro zone banks
The tremendous US$ 1 trillion dollar stimulus package notwithstanding, the European Central Bank (ECB) has warned in a recent report that banks in Euro zone could potentially face losses of the magnitude of US$ 237 bn in a ‘second wave' of potential loan losses over the next 18 months. It should be noted that write-offs to the tune of US$ 290 bn have already been made by these banks in the year 2009 and hence, these banks are going to come up against some extremely testing times. In fact, had it not been for the intervention by the ECB, which is buying mostly Greek, Portuguese and Spanish bonds in the open market, the scale of losses would have been even higher.
The step by the ECB is similar to that taken by the US Fed whereby the latter had taken up to buying mortgages to the tune of an amount similar to what the ECB is shelling out. In the process, both the central banks are likely to expand their balance sheet at a tremendous pace, raising the danger of runaway inflation somewhere down the road.