What’s the spurt in gold prices mean?

Stephen Beard Sep 20, 2010
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What’s the spurt in gold prices mean?

Stephen Beard Sep 20, 2010
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TEXT OF INTERVIEW

STEVE CHIOTAKIS: The price of gold has surged to another record high. It hit more than $1,280 an ounce in London trading today. But is the yellow metal flashing a warning signal about the state of the U.S. economy? Marketplace’s Stephen Beard is with us live from London with the latest. Hi Stephen.

STEPHEN BEARD: Hello Steve.

CHIOTAKIS: So the latest spurt in the price of gold bullion. What’s it telling us?

BEARD: It’s not a good sign, unless you’ve got a few bars stashed under your bed. I guess you don’t, but it clearly reflects jitters about the state of the U.S. economy in particular. Fears of a double-dip recession and specifically, worries that in order to counteract a slowdown, the Federal Reserve, when it meets tomorrow, may announce that it’s wheeling out the printing presses again and pumpting more dollars into the system. Neil McKinnon is a currency specialist with VTB Capital.

NEIL MCKINNON: The markets believe that the Federal Reserve will print more money, which is sort of undermining the U.S. dollar. And as far as investors are concerned, they’re losing confidence in paper currencies generally.

This the key, of course, worries about the value and stability of other major currencies too — the euro, the yen, the British pound — are also boosting the price of bullion as the ultimate safe haven and store of value.

CHIOTAKIS: I’m curious, Stephen, is this just speculators at work? I mean investors speculating that there will be a burst of inflation or are there other factors pushing up the price of gold bullion?

BEARD: Yes. On the supply side, gold mining companies are struggling to produce any more of the metal and non-speculative demand is holding up. There’s still a solid base of industrial demand, there’s demand for gold jewelry — still very high, especially in India — and central banks have been buying more gold for their reserves. Two Asian central banks, in particular, reportedly bought 15 tons of the stuff last week.

CHIOTAKIS: That’s a lot of gold. All right, Marketplace’s European bureau chief Stephen Beard in London. Stephen, thanks.

BEARD: OK Steve.

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