Once inflation is in gear, currency values drop, gold market prices climb globally.
Posted by Adam King on October 27, 2011
Currency Tensions Sustain Future Increment in the Gold Market Prices
October 27, 2011 – It is quite clear that China dumps more inflation to developing nations than what was formerly predicted, according to an up-to-date International Monetary Fund (IMF) statement. When Chinese inflation raises 1 percent, it augments Asia-Pacific countries by 0.25-0.5 percent. The menace here, pursuant to the IMF report, is an ascending Chinese output compelling commodity prices to rise. Once inflation is in gear, currency values drop, gold market prices climb globally.
Global commodity prices can rise simultaneously with Chinese output by a 5 to 1 ratio, respectively. The report also stipulates that the Asian-Pacific region is particularly susceptible to commodity price growths since food and energy make up a considerable amount of normal daily expenditure.
Low wages and cheap currency are the strategies the Chinese are implementing to help construct a massive export-led growth engine. The ball park figure of the Chinese yuan’s assessment is that it has been minimized by 40%. This, in turn, causes Chinese products to be falsely inexpensive. China is also responsible for steering Western companies overseas and bringing with them their next generation technology. Goods are equally copied in China as made in China. There are quite a few Chinese who agree that the time has come to alter that arrangement but it will be arduous as long as China’s complete system represses originality by prioritizing rote learning instead of innovation.
As is expected, The United States Senate has something to say about all of this. They have currently voted for the Currency Exchange Rate Oversight Reform Act of 2011, which grants the United States power to penalize any nation that manipulates its currency with special duties and tariffs. Everyone knows it is because of the Chinese although the assumption is nowhere to be found. Most likely the bill will not have its way in the House. Regardless of such, Beijing will probably not even blink if it did pass, but it could definitely spark a trade war. China has recently responded quite severely. The bill has been characterized by Beijing as trade protectionism and denounces it as a severe infringement of World Trade Organization rules. This is a very problematic situation that will eventually become dangerous if not addressed appropriately.
With these apprehensive situations lurking about, the Fed will most likely turn to monetary expansion to aid the United States, which, in turn, will help the world. And, as we know, the real beneficiaries here are gold market prices.
Stewart Lawson
Senior Staff Writer – Certified Gold Exchange
Categories:
US Gold Market
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