Archive for October 7th, 2010

Will Fiscal Risk Analysis Cause the Next Global Crisis

October 7, 2010

Timothy Irwin raises this interesting point on PFM Blog (strictly views are of the author and not IMF):

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Fresh research and debate on fiscal austerity

October 7, 2010

After a brief lull, IMF kickstarted the debate again via this research paper in World Economic Outlook.

It says:

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Why gold prices continue to rise?

October 7, 2010

Ken Rogoff has a nice article on gold prices and its rising trend.

In my view, the most powerful argument to justify today’s high price of gold is the dramatic emergence of Asia, Latin America, and the Middle East into the global economy. As legions of new consumers gain purchasing power, demand inevitably rises, driving up the price of scarce commodities.

At the same time, emerging-market central banks need to accumulate gold reserves, which they still hold in far lower proportion than do rich-country central banks. With the euro looking less appetizing as a diversification play away from the dollar, gold’s appeal has naturally grown.

So, yes, there are solid fundamentals that arguably support today’s higher gold price, although it is far more debatable whether and to what extent they will continue to support higher prices in the future.

Indeed, another critical fundamental factor that has been sustaining high gold prices might prove far more ephemeral than globalization. Gold prices are extremely sensitive to global interest-rate movements. After all, gold pays no interest and even costs something to store. Today, with interest rates near or at record lows in many countries, it is relatively cheap to speculate in gold instead of investing in bonds. But if real interest rates rise significantly, as well they might someday, gold prices could plummet.


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