05/12/2006, 00.00
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Clashes between US, China and Iran may account for record gold prices

by Maurizio d'Orlando

The gold metal is commanding its highest rate in 25 years. Apart from political motives, it could well be acquisitions by private enterprises in India and China, or international investment funds, which are pushing prices up.

Milan (AsiaNews) – Gold prices rose to over 725 dollars an ounce in yesterday's bargaining. This is the highest quotation in 25 years. Currently, the quoted price stands at 726 dollars.

Apart from those who maintain that the increase in prices is a bubble destined to burst or, at least, to deflate with time – definitely, gold has very limited technical uses – the cause of the record high is generally thought to lie in the growing demand on the part of private enterprises in India and in China, or in politics. The rising quoted prices are thought to be linked to tension between the United States and Iran because of Iranian nuclear programmes or to Chinese operations.

The recent increase could well be linked to a decision by China's monetary authorities to increment their reserves of the yellow metal. According to several sources, China – its Central Bank has about 600 tons of gold – will shortly aim to hold up to 5% of its currency reserves in gold. This proposal means a volume of around 2,400 tons acquired by China, circa two-thirds of annual global production. The reasons for this diversification would be political, that is, linked to hidden differences with the United States, as well as purely economical, owing to the fact that China is currently one of the countries with the largest financial liquidity reserves in the world, held mainly in dollars. From a strictly economical viewpoint, protecting Chinese currency reserves from the weakness of the dollar could be considered to be a wholly understandable move. In fact, it must be noted that the American Federal Reserve increased the interest rate a few days ago, without any resulting benefit for the dollar exchange rate.

Other observers said that now even private enterprises in China, as in India, can buy gold. India is a country with a rural population that has always trusted gold, rather than banks, with its savings. Even before the liberalization of possession of gold by private owners, in India, historically, the dowry of young brides in peasant villages used to consist of bracelets and necklaces of gold. Given the notorious precariousness of the domestic banking system in China, it is logical to suppose that private enterprises in China may want to hold some of their savings in gold.

Other observers have said the increase in prices is down to the acquisition in investment funds, in search for alternative solutions to counter risks linked to inflation and the possible collapse of world stock exchanges, especially American and European ones.

Others still say that circulation of paper money has been at unsustainable levels for some time now. They claim that not only in western countries, but also in the rest of the world, finance, at least in the short-term will upset every aspect of economy, production and even social and personal life.

Should any of these speculations turn out to be true, the next stage of gold prices could be not 800 but 1,800 dollars per ounce, and at the same time, we could see crude oil selling for 200 dollars a barrel.

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