GOLD FEVER COMES BACK

The situation on world financial markets is unlikely to be back to normal any time soon. This was particularly noted at the recent Toronto summit of the G8 and then at the G20 summit. Much of the discussion was devoted to stabilizing the global financial system, reducing budget deficits, tackling national debt and reforming international organizations.

The key theme of the G20 meeting was to reform the international financial architecture of the financial markets and banks.

According to Western experts, the debt problems of Greece, Spain, Portugal and several other European countries frighten investors and destabilize the situation across the whole of the Eurozone. But the main problem of financial markets is the huge mass of unsecured money.

The US is no better off than Greece, which has been affected by a financial disaster, although at first glance it seems that things are better in America. A well-known investment expert, Michael Maloney, says that in the spring of 2007, the US Congress passed a law allowing the ceiling of national debt to be raised from 8.2 to 9 trillion. In just a few months, the debt totalled 8.98 trillion, and Congress had already raised the upper limit of debt to 9.8 trillion, i.e. in just a few months, the US national debt increased by 850 million dollars. This means that every child born in the US already has a debt of 30,000 dollars. All this is the result of inept spending on unsecured social expenses. The US and several European countries undertook commitments on social and other expenses without thinking about where all the money would come from.

According to the Russian publication Finam, the rate of the dollar against the euro dropped to 1.5 last autumn, while the yield of treasury bonds was close to 4 per cent. President Obama's plans for economic recovery required an increase of a further 4.2 trillion dollars in the budget deficit in the next two years.

The US budget deficit for the current financial year is expected to be 1.4 trillion, which will account for 11.2 per cent of GDP (for comparison, in Greece it is 13.8 per cent), while total public debt at the end of 2009 was 12.8 trillion, which is about fifty per cent more than in Greece per capita. The EU's total debt is 7.7 trillion euros or 61.5 per cent of GDP (in 2008).

However, the White House will avoid street battles like the ones that happened in Athens, and will simply print the right amount of greenbacks and thus, reduce social tensions in society.

But, according to the Russian investor Yevgeniy Ryabitskiy, in the near future investors will become extremely concerned about the debt problems of the USA itself. We should then expect a rapid fall in the rate of the dollar against other currencies and the threat of another collapse in the world economy, already associated with a crisis of confidence in the dollar.

All this currency juggling will ultimately undermine confidence in all major world currencies, especially as issues of currency to plug holes will boost inflationary processes, which will finally lead to an exodus of investors to alternative fields. As a result, we can expect higher prices for gold and other commodities, the Russian edition said.

According to several prominent financial analysts, we are not entering an era of a single reliable currency and the most promising product for investment is gold.

The world, it seems, will finally lose confidence in paper money. The image of the dollar turned out to be stronger and more influential than the dollar as an international currency. Having travelled a difficult evolutionary path, mankind is back to square one - gold. The flight from paper money will manifest itself in doubling gold prices and make the "yellow metal" the best subject of investment.

The most important arguments in favour of an upcoming "gold rush" were described by the director of 4C Diamond BVBA, Michael Turner, at the International Conference "Banking and Finance 2010" held in Baku. It is appropriate to cite the main points of his somewhat shocking statements. Turner said that the problem with paper money is that the governments of various countries can print it in unlimited quantities. And they have been doing this throughout history and, in particular, over the past 100 years, which has led to the complete collapse of most currencies. Most people do not even realize that their government is devaluing their money. Printing money creates the illusion that they are getting richer, while all they have is pieces of paper with large numbers of zeros on them. But there is one currency that a state cannot print, and that is gold. Gold has been real money for nearly 5,000 years and is the only currency that has survived throughout history. Gold cannot be printed, and no nation can control it completely. That's why gold will always expose fraudulent activities to create money. This is what we know from experience. Gold is not rising in absolute price. Instead, gold is only doing what it has always done, namely, maintaining its value and purchasing power.

Turner cites a report by the French bank Societe Generale, which states that a growth of $10 trillion in government debt in developed countries in the next two years, caused by the struggle against the crisis and by the stimulation of economies, may lead to a fall in the rate of the dollar and oil prices and make it risky to invest in any assets in the US and the EU.

He believes that we are now seeing the complete destruction of paper money, whether it is the dollar or pound, euro etc. Over the past 10 years alone, the dollar has depreciated against gold by 79 per cent. Almost the same situation has applied to most other currencies. Therefore, the belief that gold rises in price while the value of paper money declines is an illusion. All that gold does is reflect the unlimited printing of paper currency.

In addition, according to the analyst, during the global crisis there is no alternative investment that can be compared to gold in terms of reliability, liquidity and profitability.

In the next few years, gold will get strong support from "black gold" - some OPEC countries, including Russia and China, have agreed to begin paying for oil deliveries in gold in the near future.

 US banks have already predicted that the cost of gold will rise to 2.500 dollars per troy ounce by 2013, and that is a more than twofold increase.

The growth in the value of gold is also motivated by the lack of large-scale use of gold in industry and, as a consequence, by the fact that gold cannot depreciate as a result of industrial decline as regularly happens with oil, metals and coal.

Another important argument is that it is impossible for one player to speculatively devalue gold by releasing large amounts of it. Ownership of gold is distributed more or less uniformly, and its production and reserves in the subsoil are well-known, the expert said.

By the way, George Soros recently moved from the foreign exchange market to the gold market. He once again warned that the European currency may not survive the current financial crisis.