Nations’ new found love for gold may lift prices

January 30, 2009

Commodity Online
NEW DELHI: Remember the hullabaloo over India pawning its gold reserves to clear debts in 1991. The country’s foreign exchange reserves took a dive and hit rock bottom in 1991. With reserves worth only $5.8 billion left, India had to pawn its gold reserves with the Bank of England to avoid default on debt repayment.

So, at that time gold rescued India from a major crisis. Indians are known for their love for gold. But, several other nations are not like that. They keep their reserves in currencies like China which has kept its reserves in dollar terms.

Those nations are now thinking twice about their decision to keep reserves in currencies instead of gold.

So, there is a new found love for gold among nations following the economic slowdown across the globe.

If nations decided to switch over to gold as reserves, prices of the yellow metal will hit record highs.

According to market analysts, there was a possibility that central banks, including China’s, might start to switch from dollar holdings to gold, which could cause the price of the metal to treble.

The gold price was up this week trading at about $890. At present the record high is $1,030.80 an ounce, achieved in March last year. Gold has been one of the best-performing assets of recent months, rising in value by nearly 17 per cent since late October.

If these banks decide to diversify into gold, then the prices of yellow metal will soar to new heights.

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