The economy remains weak in both the United States and Europe, paving the way for continued gains by gold, says Moorad Choudhry, head of business treasury, global banking and markets, at Royal Bank of Scotland.
“Economic growth is not taking hold, and current policy is insufficient,” he writes on CNBC.com.
|
Gold has been on a record run
(Getty Images photo) |
“Having tackled the easy part (monetary policy, central bank rates and printing money) in full, and the hard part (fiscal policy, and spending cuts) only partially, it is apparent that this is not enough.”
We have merely seen huge bank losses transferred to government balance sheets amid bailouts and aid programs, Choudhry says. “Why hasn’t that solved the problem? Because the recovery in the USA and Europe has been lackluster at best.”
He calls the economic rebound “slow and patchy.”
This problem has played itself out through a price increase in gold, which has soared to record highs above $1,540 an ounce.
“Gold price rises reflect a risk-averse ‘flight-to-quality,” and have come about mainly because of dollar weakness and worries on sovereign credit risk and inflation,” Choudhry writes.
“Given this scenario, the target price of $2000 for gold doesn’t look quite so far-fetched.”
Others are bullish on gold too. “Until monetary policy changes, you’re going to continue to see gold go up,” Michael Cuggion, who helps manage $12 billion at Permanent Portfolio Funds in San Francisco, tells Bloomberg.