How to avoid the $1,500 gold-backed debt trap
AUSTRALIA’S $1.9 billion gold-based debt-trap has put Australia at the heart of an unprecedented global gold rush, with some traders saying they are willing to pay more for precious metals if it means less risk.
AAP/ABC News In Australia, a recent survey of gold traders showed a “significant” surge in demand for the precious metal after the country’s government lifted restrictions on gold imports last week.
But gold traders have warned that a return to gold would put the country at a competitive disadvantage to its rivals in the West.
Gold is the second-most valuable metal after silver in the world after China.
In recent years, gold has become the gold-trading currency of choice in China and Hong Kong, which have seen huge volumes of gold trading in their markets.
China’s gold trade rose from 1,000 tonnes in 2007 to 5,000.7 tonnes in 2012.
The demand for gold surged from 1.8 tonnes a year ago to more than 8.5 tonnes in 2018.
“We’ve been in a gold market boom for 20 years and it has now reached a plateau,” Andrew Molloy, an analyst at consultancy Capital Economics, told ABC News.
“[The] demand is definitely increasing.
Gold is being traded as a hedge against future deflation.”
While the Australian dollar has been the global reserve currency, the value of gold has surged over the last decade to about $US1,300 an ounce ($2,250), making it the world’s second-largest commodity.
At its peak in 2007, it was worth $US2,400.
And despite the current price, it has more than doubled in value since then, from $US300 to $US450.
Molloy said gold would probably continue to rise for at least another five years, and even longer, but he predicted it would be around the $US4,000 mark by 2030.
Australia’s gold industry has suffered from the boom in the price of the metal, with the government recently announcing it was tightening restrictions on imports and the price could drop below $US100 per ounce.
Australian gold miners say it’s too soon to speculate on the gold price, with a spokesman saying the industry was “still in the dark” about the market.
For gold traders, the price fluctuates in different ways over time, with an average of three to four ounces a day fluctuating from the middle of June to the middle to end of October.
While a higher price will help with the boom, there are also risks for those who are willing take risks, including the risk of having to pay higher interest rates.
There are also other financial risks, with investors holding onto their gold for fear of being forced out of the market, and being forced to sell their gold to fund their debts.
Experts say a return of the gold market to normal could be a good thing, but some have warned gold may be a bubble.
One of the biggest fears is that the gold rush is simply a temporary phenomenon that will recede as the market recovers, with gold price levels continuing to rise.
‘Gold is a hedge’Gold traders say the surge in interest rates in the US, where gold is traded at about $2,000 an ounce, will drive up the price even further, and the value will likely continue to fluctuate.
It’s not just gold that’s affected.
Gold miners in the UK and China are also suffering from a similar bubble.AAP:AP