International Business Times: Gold

Mirtchev, A. (2011, November 23). Gold. International Business Times

International Business TimesIn response to the question posed by the International Business Times, ‘Does the new line of credit by the IMF to strong Eurozone economies raise the chances of higher inflation and a rise in the price of gold?’, Dr. Alexander Mirtchev, President of RUSI International, considers that the IMF’s provision of a new credit line to even strong and healthy Eurozone economies consolidates its tangible role in the current crisis by extending a further global financial safety net. As far as the price of gold is concerned, he posits that such moves, ‘while not a decisive factor,’ tend to ‘contribute to the rise of the price of gold.’ The inflationary pressure from this credit line, which could ‘act as another form of quantitative easing,’ would contribute to further commodities price rises, including gold. In addition, the inflationary pressure could exacerbate the flight to gold’s perceived safety, thus further pushing prices up. Not forgetting the classic ‘on the other hand,’ this upward movement would be offset by the dearth of liquidity due to the European debt crisis. Debtors – both private and state – would need to liquidate assets in the process of restructuring their liabilities, including via sales of gold reserves. This was also exacerbated by regulatory requirements of commodity exchanges, which entailed traders liquidating stocks, including gold, in order to meet increased margin requirements. Thus, irrespective of blips resulting from the inflationary pressure from measures such as the IMF’s credit line, the gold price is likely to continue to follow the fundamentals.