Monetary Demand Returns For Gold As Central Banks Devalue Currency

  • Posted Tuesday, September 02, 2014 at 08:40 PM

TANGIBLE INVESTMENTS - Los Angeles - by James O'Dell - Gold and Silver prices retreated sharply on Tuesday with Gold sliding 1.70 percent to $1,265.40 an ounce after key support failed at $1,280 an ounce, while Silver dipped 1.64 percent to $19.18 an ounce, as equity markets firmed and the dollar hit a one year high against the euro ahead of a key European Central Bank (ECB) policy meeting later in the week.

Also weighing on Gold was a report by the Institute for Supply Management (ISM), that its Purchasing Managers Index (PMI) showed a reading of 59.0 percent in August, handily beating economists’ expectations of 57 percent. A reading above 50 signifies an expanding sector, while a reading below-50 indicates contraction. The August reading is the sector's best showing since March 2011.

Meanwhile, ETF Securities says that monetary demand for Gold and Silver could return as central banks continue to devalue their currencies. “Based on rhetoric and the actions of the worlds’ major central banks embarking on aggressive liquidity-providing strategies, few major economies would be desirous of a stronger currency,” says the major fund provider.

"With the major central banks committed to an extremely low or negative interest rate environment, and investors expecting further stimulus, demand for monetary metals could gather pace. In this environment, measuring global currencies against Gold or Silver can be considered the more prudent measure,” added ETF Securities.

Currency devaluation can strike quickly and deeply. “Everyone in the country was in shock. People’s net worth had devalued more than 53 percent overnight. The value in savings accounts dropped in half and neither merchants nor consumers knew how to react because they had never been through something like it before…” This was an American business executive's description of the scene surrounding Mexico’s devaluation of the peso that occurred 38 years ago yesterday, on September 1, 1976.

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