Gold Prices Soar as Dollar Languishes

      October 08, 2009 11:08

      Gold prices are soaring, hitting an all-time high amid the dollar's global weakness. At the New York Mercantile Exchange, gold futures were traded at US$1,039.70 per ounce Tuesday, setting a new record since Sept. 16 when the price was $1,020.20.

      Investors' are shifting from the depreciating greenback to gold. In the international financial market, the shift is seen as a sign that the dollar's status as the world's key currency is eroding.

      But a weakening dollar usually drives global funds to the raw materials market, leading to a surge in commodity prices. This time is no exception, with the rising gold prices accompanied by higher prices of raw materials including crude oil and copper.

      Experts predict gold prices will keep rising. In its latest analysis, U.K. precious metals consultancy GFMS said considering inflation, gold prices should reach $2,079 per ounce.

      In February and March this year, rumors that another credit crisis was looming in Eastern Europe and Asia drove investors to dollars as the safest asset and pushed up the currency. As fears abated, the dollar began to dip.

      There are other reasons behind the dollar's loss of attractiveness. The U.S. is recovering more slowly than other economies while maintaining low interest rates, and the Treasury keeps issuing bonds. With the declining prices of the U.S. state bonds, some countries including China and Japan are shifting their reserves from U.S. bonds to gold and euro.

      On Sept. 27, World Bank President Robert Zoellick said, "The United States would be mistaken to take for granted the dollar's place as the world's predominant reserve currency. Looking forward, there will increasingly be other options to the dollar." But many expect the dollar to maintain its role as the world's key currency. IMF Managing Director Dominique Strauss-Kahn said last month the dollar's role will not diminish and during the current financial crisis it has been an unrivaled safe haven asset.

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