Although the receding nature of its price performance since reaching an all time high of $1911.60 in late 2011, the renewed ambitions of gold bulls has been sparked once more in the face of crisis with an impressive rally of over 30% gain year to date.
Bias in the yellow metal is further boosted by the troublesome position world central bankers find themselves in trying to reignite the embers of inflation that's dogged developed world economies for some time after the onset of the Financial Crisis in 2008.
Their collective efforts thus far have yet to yield the desired outcome most expected by world leaders who had envisioned a stronger foothold on their respective economies after a spiralling crisis had drained all decency from the pool of conventional policy that had been trusted for all these years. What they hadn't bargained on was the extensive use of monetary policy whilst ignoring the calamitous state of government debts would eventually uncouple artificialness from reality.
The first signs of trouble brewing came when China's economy failed to buoyantly recover from a slump in economic activity causing shockwaves throughout the global financial system, however if the expediency of "easy money" had truly done the trick to fix what had been broken then there was no need for alarm or so that's what politicians fronted.
Evidence began to show the world economy wasn't able and strong enough to withstand a contractionary event that occurred at a time when central banks hadn't even begun to consider lifting interest rates from their lowly existence.
— Thomas Biesheuvel (@tbiesheuvel) July 7, 2016Momentum quickly drove up the possibilities of using negative interest rates as a tool that had only been implemented in smaller, open and more liberal countries such as Switzerland, Finland and Norway. It should be stressed that the positive effects from using such measure hadn't been recorded at the time when other larger economies decided to do the same.
Japan and the European Union have effectively become the poster boys for the policy with sentiment built in those regions leaning towards that thought with the US Federal Reserve being the only developed nation committed to normalisation of interest rates but as it turns out the pressure is mounting on them to reverse an initial decision to begin lifting and join the fray of sinking interest rates.
In the time before we reached this point, the market saw signs of the central banks stimulating their economies as a positive, now the opposite is true. The more stimulus measures are put in place the less convinced participants are becoming over the relevance of such event and more concerned about the ill consequences they will have which is why the sudden rush to gold.
The longer central banks hold off triggering off the inevitable and making governments more accountable for their policy inaction the more likely the demand for gold will rise because the market is becoming fearful that the usefulness of monetary policy has worn so thin that any further efforts will simply hold no weight in pushing things forward.
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