Gold Investment

The last time the country experienced near out-of-control inflation was during President Carter’s reign. Carter appointed Paul Volcker as the Federal Reserve chairman and Volcker kept raising the benchmark interest rate until inflation slowed from a record high of 13 percent. As many economy students know, this has a tendency to put the overall economy into what some might consider a recession, although in reality we know that it is not recession we are seeing but an economy correction that must take place. When the Federal Reserve creates too much new money over time, the markets seem to appreciate and look profitable. In reality, they are not truly profitable but bubbled.

Paul Volcker who is now 78 was interviewed on the Bloomberg TV show Political Capital with Al Hunt He says that the time he had as chairman of the Fed is easier than what current chairman Ben Bernanke faces:¹ “While the economic situation was much worse, it was easier to act because it was clear what the enemy was.”

Gold markets may see a downward trended correction with a decreased supply from a new State-disincentive for gold purchases as Pakistan imposes a withholding tax on gold purchases.² This withholding tax has completely shut down gold imports into the popular gold jewelry-producing country: They said that that the commercial importers of gold have immediately cancelled the already booked orders and halted the import process from different countries with immediate effect from 1st of this month. With this large physical demand virtually turned off, it may have a fast effect on prices of gold over the short run, even with the Indu-region holiday season to prepare for.

Another supply-increase is coming from Peru, as their economy sees a 6.5% expansion based on new gold supply production.³ Some mines in the region saw a 10% increase in production, which can put a downward pressure on gold’s market price if demand does not match the new supply.

The Russian Ruble has introduced free convertibility this month, and they are also fast-tracking the establishment of a domestic oil bourse. With free convertibility of the Ruble as well as a hope for a new oil bourse in the region, this might put a new demand on the Ruble for purchasing of oil from the domestic bourse.⁴ This would decrease demand for the international petro-dollar, causing a possible increase in the USD price of gold even if other currencies show stronger in pricing against their currency. Iran has always spoken of creating an alternative oil bourse instead of the current monopoly in petrodollars.

Iran’s oil bourse might be set for September, 2006, according to some non-mainstream press reports:⁵ The building that will house the oil bourse has reportedly already been purchased in the southern Iranian island of Kish. The Iranian oil bourse is theorized to be pegged to a petroeuro, which would also decrease demand for the US petrodollar.

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