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Thursday, July 21, 2011

Why Did The Gold Price Jump To The Sky?

It was considered a safe investment to purchase dollars, in the near past. From common man to governments used to buy dollars and felt proud of it. The country having foreign exchange reserves in dollars was lucky. But, now the situation has been quite changed due to the weakening of economy of USA and decline in value of dollar is occurring gradually. The countries having huge foreign exchange reserve in dollars are worried. The countries include China ($ 2.622 trillion),Japan ($1.96 trillion), Russia ($ 284 billion), Saudi Arabia ($ 465 billion), Taiwan ($ 387 billion), Brazil ($ 290 billion), India ($ 284 billion), South Korea ($ 274 billion), and Hong Kong ($ 268 billion).
When the news spread in the world about the likely weaker position of dollars, economist are suggesting to common people and the governments to invest in precious metals like gold and silver. Following the suggestions the riches people and various governments are buying gold and silver, the prices of both the metals jumped to very high level with in 2-3 years.
Russia has recently bought 50 tons gold, even the International Financial Institutions like IMF and World Bank are purchasing gold instead of dollars. They know that if America will make them collapse if it too reaches to default stage. China last year had foreign reserves of $ 3 trillion but it bought gold for $400 billion during 2011. China, Russia India and other countries are converting their foreign exchange reserves in other currencies. The problem with China is that USA owes its debt worth more than one trillion dollars. It is forced to take financial steps that must make dollar stable otherwise its loan and reserves will become zero. It looks like USA is such a Titanic that if sank will drown many countries with it.
China is trying to make its own or some other currency should get the status of world reserve currency. When an alternate currency replaces dollar it would be easier to declare USA a default state. Till that time world will have to tolerate falling and collapsing USA.

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