Gold prices shot up to a new record of $1,512.50 an ounce in New York late on Friday, posting a record weekly gain and maintaining a six-week winning streak. While a lot of gold investors are laughing all the way to bank the world over, gold's super cycle rally could have ominous meanings for the Us economy.
Analysts have pointed out that gold's advance into what is termed as a super cycle does not bode well for the US economy.
A sustained gold and oil boom indicates that the dollar is slipping into grave danger and the economy closer to collapse, according to Daily Markets analyst Michael Snyder.
"... when these commodities go up in price it is a sign that the U.S. dollar is dying and that our country is getting closer to economic collapse," Snyder wrote recently.
He explained that when the gold and silver prices soar, it indicates that investors everywhere in the world are losing trust in the dollar and the U.S. government treasuries. And they seek out something they can trust more.
"The U.S. has been running trillion dollar deficits for several years now, and this has created a lot of new money." And he says the rest of the world is now seriously doubting the sustainability of U.S. government debt.
The factors that fuelled this unseemly gold rally are numerous, but the most prominent ones are panic over the state of fiscal stability in the U.S, a weak dollar, spiralling crisis in the Middle Eastern oil hub of and sustained uncertainty over European economic health, coupled with new sources of instability in Japan.
And among these it's dollar that is hurting the most. It’s no coincidence that dollar had fallen back to near-three-year lows against major currencies when precious commodity prices shot through the roof.
And the prospects for the dollar are bleaker in the months to come. Interest rates are at a record low and the Fed has still not looked like they are going to rise any time soon. Besides, the federal budget deficit puts added pressure on dollar, precipitating its possible fall towards the 2008 lows.
This is why analysts think the gold super rally is likely sustain well into the coming years. Analysts quoted by Reuters said they thought gold prices could touch $1,700 an ounce in 2015.
What the gold rally means to the dollar and the American people is obvious from the rush pawn shops see across the United States. "For many Americans struggling to make ends meet, the gold boom has meant a heart-breaking trip to the pawn shop, selling off jewellery to pay the bills," UK's Daily Mail wrote in an article.
"A lot of people don't want to sell their jewellery, but they have to ... It's their monthly mortgage payment or whatever the case is ... We hear a lot of sad stories," says Steven Bumb, part owner of Santa Cruz Pawn, according to the report. People also flock to gold parties where they can discreetly sell gold to meet their cash requirements.
High unemployment levels also drive people to the thriving wee -buy-your-gold markets across the country.
The commodity rally is not just limited to gold. Silver outperformed gold again in the last week, recording an 8.4 percent weekly gain as against gold's 1.5 percent gain. Silver prices hit another all-time peak of $46.69 an ounce.
The Standard Chartered bank report said gold prices could reach $2100 by 2014 per ounce and that as high a price as $5000 per ounce by the end of the decade is possible. The bank said gold prices are yet to hit the super cycle as demand from the emerging economies like China and India will scale to peak levels later in the current decade.
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