The reason is that Indian buyers historically are large consumers of gold. As the rupee declines in value, it makes the price of gold that much more expensive. Currently the Indian rupee continues to tumble to record lows against the U.S. dollar.
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New York, NY (PRWEB) July 31, 2012
In a recent Investment Contrarians article, editor Sasha Cekerevac argues that gold has been extremely volatile this year, with many underlying forces disturbing its flow. Cekerevac notes that with the European crisis continuing, the rush of foreign funds into the U.S. dollar has placed more pressure on the price of gold, due to the price of gold being quoted in U.S. dollars.
“However, another currency to watch is the Indian rupee. The reason is that Indian buyers historically are large consumers of gold,” comments Cekerevac. “As the rupee declines in value, it makes the price of gold that much more expensive. Currently the Indian rupee continues to tumble to record lows against the U.S. dollar.”
Not only is the entire Indian economy weakening, but also many Indian companies have always borrowed funds in foreign currencies, Cekerevac notes. These foreign-currency bonds are now deeply hurting the issuing companies, he observes, as they now have to pay a far higher amount.
“As the Indian rupee decreases, repayments increase, which is now causing such a burden that many companies are defaulting on their foreign-currency debt,” explains Cekerevac. “This will raise warning flags for any foreign-currency investors, putting even further downward pressure on the Indian rupee.”
The Investment Contrarians editor advises investors to wait for the Federal Reserve to enact additional quantitative easing before investing. This, along with more monetary stimulus by Chinese and European financial authorities, should provide another leg up for the price of gold, he reasons.
“As it stands right now, with the Indian rupee continuing to drop, there will be no demand coming from India’s consumers, and continued selling will keep some pressure on the price of gold,” concludes Cekerevac.
To see the full article and to get a real contrarian perspective on investing and the economy, visit Investment Contrarians at http://www.investmentcontrarians.com.
Investment Contrarians is a daily financial e-letter dedicated to helping investors make money by going against the “herd mentality.”
The editors of Investment Contrarians believe the stock market and the economy have been propped up since 2009 by artificially low interest rates, never-ending government borrowing and an unprecedented expansion of our money supply. The “official” unemployment numbers do not reflect people who have given up looking for work and are thus skewed. They believe the “official” inflation numbers are also not reflective of today’s reality of rising prices.
After a 25- to 30-year down cycle in interest rates, the Investment Contrarians editors expect rapid inflation caused by huge government debt and money printing will eventually start us on a new cycle of rising interest rates.
Investment Contrarians provides unbiased research. They are independent analysts who love to research and comment on the economy and investing. The e-newsletter’s parent company, Lombardi Publishing Corporation, has been in business since 1986. Combined, their economists and analysts have over 100 years of investment experience.
Find out where Investment Contrarians editors see the risks and opportunities for investors in 2012 at http://www.investmentcontrarians.com.