Central banks in countries namely United States (US), Germany, France and Italy hold 70% of their reserve in gold. What spurs them to use gold as reserve is their loss of confidence towards the two world leading currencies, the US dollar and Euro. Gold is viewed as a federal reserve and is a counter against the swing of the US dollar.
United States, who is the leader in the world of economy, has been facing one of the roughest times with its shrinking economy and increasing unemployment rate. Since the concluded of the Great Recession 3 years ago, the country’s employment rate has topped 8% for each month with job growth slowed drastically in August. Employers only added 96,000 jobs which indicate a fall from 141,000 in July, far below the 12 million over citizens who are still unemployed.
The US economy is currently tussling with financial crisis after the Great Depression. Similarly to the previous 1929 worldwide economic downturn, marked with immense bank failures and stock market collapse, the country is once again encircles with unforeseen bankruptcy of huge trusted banks and extreme market volatility.
There are many prime causes that lead to the current US financial crisis and gradually affecting the global economy. During a recent media round table discussion at Public Gold, Mr Pang Bo Fu, the President of International Consumer Federation for Businessmen in China, who foresees US to encounter a drastic economy downturn very soon.
Our world financial economy was once down with one of the worst financial crisis in year 2008 caused by the sub-prime crisis in the US. Even before the world could make a full recovery, another catastrophe spawned from the Eurozone crisis currently struck the global economy again.
Of date, no one can make prediction on how long the crisis will linger or the blow it may cause to the global economies with countries namely Portugal, Ireland, Italy, Greece and Spain facing huge debt-GDP ratios and massive fiscal deficit problems. However, as investor, we can always turn to investment asset such as physical gold to help ease and combat the crisis.
Many countries across the world are hit by the economy crisis. European countries, US and India are among the few countries who are currently struggling their way through combating the lethal crisis.
India for example, has increased the import duty of the precious metal to 4% in order to control its citizens from buying and investing in gold. Hence, this resulted in a 21 days boycott against the new policy among the goldsmiths in India. They demand for a reduction of import tax from 4% to 3%.
With the softening of gold prices since early this year, it could trigger an increase of sales among gold products in the market. This is because people are more susceptible to purchase the precious metals as they may find the prices more alluring during times like that. Even if gold prices were to drop, they will increase gradually and unlikely to cause havoc selling.
The price of gold per ounce now hovers at US$1,630, compared to US$1,740 in January 2012, and US$1,800 in November 2011.
Since January 2012, due to the rise in demand for gold products, Public Gold has been producing about RM20mil worth of gold dinars, gold coins, and gold commemorative items, compared to a monthly average of RM12mil, for 2011.