- Gold is Money
Wednesday, September 26, 2012
Gold is no longer a commodity trading in step with other commodities against the dollar, but is developing a life of its own as a currency in itself, say Deutsche Bank analysts Daniel Brebner and Xiao Fu.
Global uncertainty tends to have commodities moving in a risk-on, risk-off trading pattern, meaning good news generally sends commodities up and the dollar down, while bad news sends both asset classes in the reverse direction, with some exceptions.
That pattern is quickly becoming a thing of the past where gold is concerned, as the precious metal is becoming less correlated to other commodities and is behaving more like the safe-haven dollar and yen amid market swings.
Central bank demand for the metal is further fueling the trend.
“While it is included in the commodities basket it is in fact a medium of exchange and one that is officially recognized (if not publically used as such). We see gold as an officially recognized form of money for one primary reason: it is widely held by most of the world’s larger central banks as a component of reserves,” the pair write in a report, according to Business Insider.
Furthermore, loose monetary policies have weakened paper currencies like the dollar to the point that gold is becoming an even more attractive currency unit, they write, predicting a price target of $2,000 an ounce in the first half of 2013.
Gold is currently trading over $1,770 an ounce, breaking six-month highs thanks to the Federal Reserve’s decision to roll out a third round of quantitative easing — bond purchases from banks that flood the economy with liquidity to push down interest rates, weakening the dollar in the process.
Other experts see gold continuing its gains as long as the Fed continues to juice the economy with quantitative easing, which will run on an open-ended basis.
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