The developed economies are under turmoil; reports indicate that Aug 2010 recorded highest number of mortgage foreclosure for the month in US. However gold seems to be going strong in it’s pricing undeterred by US economy.
In the last two decades, the heavy weight battle is gaining momentum, the trend shows it is between USD Vs Gold, particularly when compared with Indian currency.
In the early nineties, India had balance of payment crisis, which made them to pledge gold to IMF for a loan. I still remember, the exchange rate of US Dollars was in the range of INR 20 per dollar and we used to fill motorcycle tank at Rs 20 per litre and 1 gram of 22 carat gold was in the range of 200~250 INR. The early nineties was the time, when talk of globalization started and India started opening up its market. The telecommunication started picking up, the snail mail OR postal mail gave way to Fax mode of instant communication.
If one looks at the chart, the gold prices in US Dollars from 1985 till about 2002, it was relatively stable. It had been in the range of 200 US Dollars to 400 US Dollars per ounce (10 to 14 USD per gram). This had been the period when US Dollars was considered precious, every country wanted to boast its foreign reserve currency in USD and interestingly this also made US Dollars to claim high which kept gold rate in check. In the period of 1990 to year 2002, USD had appreciated almost 2.5 times, from about 18 INR in 1990 to about 48 INR per dollar in 2002.
Gold Price Movement – 1985 to 2010
Following period of 2002 to till date, US Dollars has been losing steam and more or less a cooling off period for USD. Again, this is when the other heavy weight commodity like gold started gathering steam and winning the price war against USD. Its was about 10~14 USD per gram even in 2000, now its has claimed to be at all time high of about 40~42 US dollars per gram.
Whenever USD appreciates, it bound to have inflationary effects in Indian economy but its indirect. The reason being, common man is not worried about appreciation of USD as compared to Gold and he does not invest in USD.
Question in any Indian mind is, will gold prices reduce or stabilize in near future? Looking at the trend it does not look so, with the world reserve currency – US Dollars seems to have lost out the race.
Not only individuals, but also even country governments consider gold as the safe bet, now. So till a time, there is an alternative to gold, where money can be parked as reserve currency, the "Gold" should be winning, the price war. A recent study by Asian Development bank, predicts China currency Renminbi becoming the reserve currency in the near future.
This might spin off another debate as 18th Century belonged to Germany / France, 19th Century to Great Britain, 20th to US –
Will the 21st century belong to Asia?.