Tuesday, November 9, 2010

Volcker Says in China He Remains Concerned About Global Economic Imbalance And Gold Futures Rise to Record on Speculation Dollar Will Decline

Former Federal Reserve Chairman Paul Volcker, who is also chairman of President Barack Obama’s Economic Recovery Advisory Board, said he continues to be concerned by global economic imbalances.

Developing economies such as China still have a “heavy dependence” on the U.S. as a market for their exports and the U.S. still has an “inability to produce savings,” Volcker said at a financial forum in Beijing today.

“The imbalances remain and those imbalances are particularly categorized with the relationship between the U.S. and China, the two leading countries in the world now,” Volcker said. “Concerns about adjustments that I had five years ago remain.”

Volcker’s comments come as Obama, Chinese President Hu Jintao and other world leaders are to gather this week for the Group of 20 Nation’s meetings in Seoul. South Korean President Lee Myung Bak said Nov. 3 that he expected G-20 leaders to agree on “guidelines” for current-account positions to ease global trade imbalances.

Chinese Vice Premier Wang Qishan met Volcker in Beijing yesterday, the official Xinhua News Agency reported. Wang and Volcker discussed economic relations between China and the U.S., Xinhua said.

The Federal Reserve’s plan to buy $600 billion of Treasuries to pump money into the world’s biggest economy has been criticized by Chinese officials including Vice Foreign Minister Cui Tiankai, who said yesterday that so-called quantitative easing may undermine the global economic recovery.

Dai Xianglong, chairman of China’s national pension fund and a former governor of the nation’s central bank, said today at the Beijing forum where Volcker spoke that the world needs a stable dollar. Dai proposed setting a trading range for the dollar.

Nov. 11 (Bloomberg) -- Gold surged to a record $1,119.10 an ounce in New York on speculation a decline in the dollar will spark demand for the precious metal as an alternative asset.

The metal climbed for the eighth straight session, the longest rally since January 2006. Before rebounding today, the dollar extended a slump to a 15-month low against a basket of currencies. India’s central bank bought gold last month to diversify reserves.

“The interest that central banks have shown for gold has really lit a fire under the market,” said Matt Zeman, a metals trader at LaSalle Futures Group Inc. in Chicago. “People are questioning the value of not only the U.S. currency, but all paper currencies. Investors are more comfortable holding gold.”

Gold futures for December delivery climbed $12.10, or 1.1 percent, to $1,114.60 on the New York Mercantile Exchange’s Comex division. The price has jumped 7.1 percent this month, while the dollar dropped 1.5 percent against the currency basket. The metal is headed for a ninth straight annual gain.

Gold for immediate delivery jumped to a record $1,118.88.

The dollar has declined more than 7 percent since December, when the Federal Reserve cut its benchmark lending rate close to zero percent to pull the U.S. economy out of recession.

Dollar Outlook

“The dollar is not going to get any firm footing with rates at zero,” Zeman said. “The dollar is going to continue to be the victim of the carry trade. People are selling dollars and putting it in higher-yielding assets. All commodities are going higher.”

The Bank of England’s benchmark rate is 0.5 percent while the European Central Bank’s key rate is 1 percent.

Governments in the U.S. and other nations have cut borrowing costs and boosted spending amid the deepest recession since World War II, spurring some investors to buy bullion as a hedge against inflation.

“What’s the value of paper money?” said John Hathaway, the managing director of New York-based Tocqueville Asset Management LP and the manager of the Tocqueville Gold Fund. “It depends on what happens in the next three years to the efforts of the Federal Reserve and other world central banks to bring about an economic recovery.”

“Would they be able to retract the liquidity they put into place?” Hathaway said today in a Bloomberg Television interview. “If they have a hard time doing it, I think we’ll see inflation, and gold will go much higher.”

India’s central bank last month bought 200 metric tons of gold from the International Monetary Fund for $6.7 billion. Sri Lanka also said it has been buying gold. That prompted analysts at Bank of America Merrill Lynch, Societe Generale SA and Barclays Capital to forecast further purchases by central banks, already the biggest holders of gold.

Silver futures for December delivery climbed 31.5 cents, or 1.8 percent, to $17.537 an ounce. The metal has surged 55 percent this year after declining 24 percent in 2008.javascript:void(0)

Palladium futures climbed to a 15-month high today.


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