January 9, 2008
It's always good to be aware of what others are saying.
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At US$100 per barrel of [crude oil], the world's oil bill will approach US$3 trillion, equivalent to roughly 5% of GDP. That would mark a one percentage point increase compared with last year and comes at a time when growth in the advanced economies is already moderating in response to the U.S. housing collapse and tightening credit conditions.
U.S. consumers in particular will feel the pinch, increasing downside risks for the American economy. While strong oil demand – especially in China and the Middle East – is contributing to the surge in crude prices, the rising world oil bill is bearish for global growth. This "tax" on growth adds to pressure for major central banks to ease monetary policy. |
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The US Federal Reserve's aggressive, rate-cutting response to the credit squeeze has created a risk of a sharp rise in American inflation. That in turn creates the risk of a precipitous fall in the dollar and so makes gold more attractive as a hedge.
The world's major economies have experienced rapid money supply growth of 10 per cent plus per annum in recent years. The Fed remains the world's biggest holder of gold, yet supplies of the metal are no longer growing annually. If gold is a finite currency, its value against not just the dollar, but sterling and the euro too, should rise.
Moreover, a sharp decline in US real interest rates – financial markets expect another half percentage point cut this month – means that the low yield on gold matters less. It may have been a poor hedge against inflation in the past but the combination of rising consumer prices and economic stagnation may make it a better store of value. |
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– Financial Times |
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