May 23, 2011, Los Angeles – Gold bullion prices rallied 1.16 percent or $17.30 to finish the week at $1,511.80 an ounce as the U.S. reached its $14.3 trillion federal spending limit last Monday with Congress no closer to an agreement on raising the borrowing cap. The price of silver lost 0.88 percent or $0.31 to finish the week at $35.06 an ounce, raising the gold/silver ratio to 43.12, as silver under-performed gold for the week.
The World Gold Council (WGC) reported last week that the demand for gold bullion rose by 11 percent in the first quarter of 2011, with China and India responsible for 63 percent of that demand. “Given the huge rise of China’s demand, which surged by 32 percent in a year, the WGC’s earlier forecast that China’s gold demand would double in 10 years could be proven too conservative,” said analysts at Commerzbank.
Treasury Secretary Timothy Geithner was forced to declare a “debt issuance suspension period,” a technical measure that allows borrowing from the Civil Service Retirement and Disability Fund and the Government Securities Investment Fund, when Congress failed to agree on an increase in the spending cap.
It may be even harder to reach a budget deal now that the “Gang of Six,” turned into five after Senator Tom Coburn (R-OK) withdrew from the budget negotiations on Tuesday. The “Gang of Six” negotiation team was viewed by many in Washington as the best hope for getting a timely budget agreement. Although Coburn was the most conservative member, he was also considered one of the most vital of the six.
According to a new report from the World Bank, the U.S. dollar will no longer be the world’s single reserve currency after 2025. “By 2025, six major emerging economies—Brazil, China, India, Indonesia, South Korea, and Russia—will account for more than half of all global growth, and the international monetary system will likely no longer be dominated by a single currency. As economic power shifts, these successful economies will help drive growth in lower income countries through cross-border commercial and financial transactions.” the report noted.
Poul Thomsen, the IMF’s chief official responsible for Greece, warned the debt-stricken country on Wednesday that its austerity measures are not adequate to deal with the nation’s growing deficit. Greece must cut its budget deficit to 7.6 percent of GDP this year under the terms of the 110-billion euro bailout that Greece received from the European Union/IMF last year.
“We are in a situation where if we do not get this acceleration of structural reforms, the [budget] deficit will get entrenched at where it is now, around 10 percent,” Thomsen said. Fitch Ratings lowered Greece’s credit rating to junk status last week, and warned Greece that it would consider attempts to extend the maturities of its sovereign debt to be a default.
Geopolitical unrest, rising U.S. debt, printing money, and terrorist threats, tend to boost the demand and the price for gold and other precious metals. You can diversify and protect your wealth by either purchasing gold for direct delivery or by rolling over a portion of your IRA holdings into a gold and/or silver IRA. The rollover is tax free and penalty free.
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American Bullion specializes in adding gold and silver to retirement accounts. If you have a question or would like to know more about your investment options, please call American Bullion at 1-800-326-9598 to speak with a precious metals specialist.