The Hindu Business Line : Precious metals can be a safe bet

Gold staged a recovery last week, especially on Friday, rising by 2 per cent. Though gold has lost much sheen since it hit a peak two months ago, analysts see scope for gold to recover in the coming days.

One of the reasons for analysts to see hope in gold is the US economy and a possible inflation in that country. Gold is a metal that is seen as a safe bet against inflation. Now, let us see what is happening in the US.

Baby Boom

According to Casey Research, the Fed is in a Catch-22 situation as it can neither cut the interest rates nor raise it. If it lowers the interest rates, then the dollar could fall. On the other hand, if the interest rate is hiked to protect the dollar then it could possibly lead to recession. Casey Research says there are a number of reasons for it to perceive problems with the US economy, among which is the fact that the presidential election cycle will begin soon.

There are other major issues too that point to problems with the US economy and case for gold market to be bullish. Those born during the baby boom in the US will turn 60 this year. It will mean the outgo on social security measures in the US will rise. As a result, the number of people receiving the US Government benefits will grow and thus it could lead to rise in deficit.

Monetary Crisis

Yet another issue, according to Casey Research, is the involvement of the US in Iraq and other activities to curb terrorism. Currently, people see the US involvement in Iraq as a sort of war and costs for these operations are met from deficits. These deficits are set to translate into inflation. Pointing out to its analyst Bud Conrad's analysis, Casey says every time US troops had been engaged in operations outside, it has led to inflation.

Given the Fed Chief, Mr Ben Bernanke's nature of monetary creation, the situation is heading towards a loose monetary policies. "While no one cay say how long it will take for a monetary crisis to emerge or what will ultimately trigger it, now is the time to acknowledge the risk," says Casey.

The slump in the US housing sector is a sign of recession round the corner and this means, investors could start thinking of buying precious metals. A clear trend should be available in the course of next couple of weeks.

More Stories on : Gold & Silver | Economy

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
SBT loans for rabbit breeders

`Excess sugar sales' by UP mills come under scanner

Orthodox teas dearer, CTC grades slump

Assam tea production dips in Aug

Palm oil may test resistance level

Gold may test resistance level

Precious metals can be a safe bet

Metals set to soar; gold seen consolidating

Mother Dairy plans brand expansion

40 countries face food shortage

Competitive edge for Indian pepper