Market of gold is very fascinating if one decides to start investing in it. It is very dynamic but the investments should be made for mid-term to long-term. Gold has proven to be an asset that has little connections with most financial assets, both in expansionary and recessionary periods. For gold, important fluctuation in the dollar exchange rate against the euro and yen are very important. The weaker the dollar is against these currencies, the more the value of metal rises. A similar situation exists with oil prices. With the increase of oil prices, investors begin to hedge the risk of inflation by buying gold. In mid-term and long-term, price of gold will rise because gold outperforms other assets such as stocks and bonds at times of high inflation as is currently the case, and can offer opportunities for impressive returns.

The U.S. Fed (Federal Reserve Board) increased the discount rate charged to banks for direct loans whereas the chairman Ben Bernanke assured that the Fed and the central bank is aware of the joblessness in United States of America. It is said that the move will cheer financial institutions to rely more on money market treasuries rather than the state bank for liquidity requirements.
The dollar bulled as the Fed retreated gradually from its extraordinary actions to arrest the deepest financial crisis since the great depression. The Fed has released hundreds of billions of dollars in backstop credit to banks, commercial paper borrowers, bond dealers and anxious financial institutions. Our financial advisory division has stated the rise in discount rate as “nonsense” because of high inflation and joblessness. The U.S. economy hasn’t yet recovered completely from financial crises and the expenditure in Afghan and Iraq war is making the situation worst. The act of raising the discount rate is a fraction of a broader move to pull back the extraordinary aid fed provided to fight the financial crisis.

Global economic recovery is in progress led by the emerging markets. The out-performance of the emerging markets is likely to remain a key feature in the year ahead as the global economy returns to positive growth. There will still be winners and losers, with financial markets satisfying the best and punishing the worst performers globally.
With the risks posed by inflation in the developing economies at this time, official interest rates are likely to be raised sooner and more aggressively in emerging markets. The Asian economies are on the road to recovery to lead the way with India possibly increasing its cash reserve ratio this month. The prospect of widening interest rate discrepancy should continue to strengthen Asian currencies in the year ahead.

US economic growth is expected to have expanded by about 4% at an annualized pace and this will strengthen the dollar in early 2010. This recovery is weaker than previous upturns following recession and may limit the upside for the U.S. dollar in the short term against other major currencies.
Because of the low U.S. inflation rate and the Federal Reserve’s grit to keep interest rates low, the dollar has become a preferred tool of the “carry trade,” endangering the world economy. By borrowing U.S. dollars cheaply (because U.S. interest rates are being artificially depressed by the Federal Reserve in an effort to ease credit and by doing so stimulate economic growth) and exchanging them for foreign currencies to lend or invest, traders can earn generous profits — though not without great risk. The carry trade may be a factor in recent rises in commodity prices; indeed, there is fear of new bubbles as a result of all the dollars sloshing around in the world economy. This poses dangers for the global economy because the carry trade is susceptible to runs. If a speculator borrows dollars in the short term to minimize interest expense and uses them to buy euros, say, and the dollar surges in value relative to the euros, the speculator may have to sell his euros in a hurry to repay his lenders. If so, the value of the euros will fall farther relative to the euros, which may precipitate a run on euros as speculators unload them. And because of the integration of the world’s financial systems, a run on a foreign currency can harm other countries’ economies.

The euro outlook remains unattractive against U.S. dollar and emerging market currencies whereas the regional single currency is in a financial situation far from an acceptable level to attract investors. The Euro will plunge till the end of April whereas UK Pounds will be stable in long run. Read the full story