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Do rising gold and commodity prices suggest future currency and deficit problems?

*Financial Times, by Gregory Meyer, December 7, 2010

”Commodity prices soared, with gold reaching a new nominal record high, as investors snapped up hard assets on fears of weakening paper currencies.

The S&P GSCI spot index, a basket of raw materials, rose to the highest point since October 2008.  The index, which is heavily skewed towards oil, has gained almost 24 per cent in the past year, triggering concerns about inflation in developing countries.

Spot gold bullion climbed to $1,430.95 a troy ounce in London, a nominal all-time high and up 0.5 per cent from Monday. In real terms gold remains below its record high of more than $2,300 an ounce hit in 1980.

Silver rose to a new 30-year high, trading above $30 an ounce for the second day in a row. Both metals declined later in the day as investors took profits.

Precious metals are often seen as a hedge against inflation or currency devaluation. Bullion’s surge came after Barack Obama, US president, agreed to extend Bush-era tax cuts for two years. James Steel, precious metals analyst at HSBC, said the move ‘increased risk appetite a little bit and also adds to the fiscal deficit.’

Oil prices touched 26-month highs before retreating on a strengthening dollar.  Nymex January West Texas Intermediate was down 69 cents to $88.69 a barrel after reaching $91.39, the highest level since October 2008.  ICE January Brent was 6 cents lower at $91.08 a barrel, after rising to $92.86, a 26-month peak.

Crude oil has jumped above recent ranges as consumption continues to bounce back after the global financial crisis.”

*This information is solely a highlight of the opinion of a third-party publication and is incomplete.  Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.