The price of Gold futures continue to shoot over the roof. One driver of the price is the recent gold purchases by India Central bank from the IMF.
The central bank of India has purchased 200 metric tonns of gold from IMF.
According to this economics time article.
India is spreading its assets which are said to be currently over-weighted with foreign currency, mainly in the form of sovereign US Treasury bonds. In other words, it is a hedge against a falling dollar.
India is the world’s largest private gold consumer, but the government’s holding of gold as an asset is modest. Even so, the latest purchase puts it at Number 10 among the list of top 10 gold-holders in the world.
Of India’s current foreign exchange reserves of nearly $285 billion, foreign currency assets account for more than 90% ($268.3 billion), followed by gold ($10.3 billion), IMF’s Special Drawing Rights ($5.2 billion) and a reserve position in the IMF of $1.59 billion.
While India’s current gold holdings, accounting for just 3.7% of assets, are said to be historically low, buying 200 tons in addition to the 358 tons it already holds is expected to bump up the gold reserves to more than 6%.
As India, China and Brazil buy gold it means more Dollars sales. The dollar may continue sliding downward.
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The common wisdom was that the stock market mirrored the economy. If the economy is on an upswing the stock market went up.
But looking at US data, a strange thing is happening. The buoyant S&P 500 has risen 53 percent since the March bottom while the economy has remained flat.
An article in slate.com explains this anomaly.
For much of the past two years, virtually all growth in economic activity has taken place outside America’s borders. As a result, U.S.-based companies are becoming even more reliant on non-U.S. customers and operations for sales.
Globalization is changing the way we do business. It’s not a matter of U.S. companies exporting goods—burgers, soda, cars, software—made in the United States to Beijing but rather, making goods overseas and selling them overseas.
The US economy might be flat but the rest of the world economy is growing fueling growth for American companies with overseas subsidiaries. That explains why American companies may report higher profits despite the US economy slowing
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Phil Donahue was interviewing free market economist Milton Friedman and wanted to know if Friedman had ever had a moment of doubt about “capitalism and whether greed’s a good idea to run on?” Friedman was quick in response:
“…is there some society you know that doesn’t run on greed? You think Russia doesn’t run on greed? You think China doesn’t run on greed? The world runs on individuals pursuing their separate interests. The great achievements of civilization have not come from government bureaus. Einstein didn’t construct his theory under order from a bureaucrat. Henry Ford didn’t revolutionize the automobile industry that way. In the only cases in which the masses have escaped from the kind of grinding poverty you’re talking about, the only cases in recorded history are where they have had capitalism and largely free trade. If you want to know where the masses are worst off, it’s exactly in the kinds of societies that depart from that. So that the record of history is absolutely crystal clear: that there is no alternative way so far discovered of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by a free enterprise system.”
Donahue then countered saying that capitalism rewards the ability to manipulate the system and not virtue. Friedman was having none of it:
“And what does reward virtue? You think the communist commissar rewards virtue? …Do you think American presidents reward virtue? Do they choose their appointees on the basis of the virtue of the people appointed or on the basis of their political clout? Is it really true that political self-interest is nobler somehow than economic self-interest? …Just tell me where in the world you find these angels who are going to organize society for us?”
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Yahoo finance had this headline 9 reasons why the economy is not getting better. The article was evidence of what I believe the $ 700 billion stimulus wont work because if you look at Japan, Japan has been stimulating its economy since 1990s and they have never returned to any noteworthy growth. Japan has been a limping giant for the last 20 years.
Back to why USA economic recovery remains elusive. This is a summary of the lengthy article
Job Losses keep rising
Every data published from the US indicates more job losses.
Workers are working shorter hours.
Those who are stilling at work are working less because their is less work to do. This means low productivity.
Rolls of part timers are on the rise
Workers working part-time are on the rise.
The stimulus has been a waste.
A lot of stimulus cash has gone into Medicaid, jobless benefits, and the like–that do nothing for jobs and growth. The spending that creates new jobs is new spending, particularly on infrastructure. It amounts to less than 10 percent of the stimulus package today.
Lastly
Americans are creating the recession themselves
They say perception is reality. About 40 percent of US citizens believe the recession will continue for another full year. Its funny that in life what believe tends to turn to be true.
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