Safe haven
During a storm on a sea sailors dream that their ships find a safe haven, one where they can wait for the end of the storm. In the times of economic crisis, gold is a safe haven for those who save up.
In the life of each generation there were all kinds of crises, e.g. wars, irresponsible governments, terrorism, or hyperinflation. In such situations gold turns out to be a good investment because the demand on gold increases quickly and, as a consequence, its price increases as well. This tendency can easily be noticed when one analyses the history of gold prices over the centuries. In such times gold turns out to be ‘an emergency supply’, one which makes it possible for us to wait until the end of difficult times.
The current situation in the world does not instil optimism in people. The world’s economic crisis is in progress. Its main reason is the instability of the international financial system, a system in which American currency is the basic currency in the international turnover. The new structure of the world economy caused that the economic role of the United States, Japan and Europe has lessened; those which are gaining importance are quickly developing economies of China, India and Brazil. Decreasing natural resources, including oil, and high costs of their extraction result in the decrease in demand. When the world economy is booming, the demand on natural resources increases quickly. When the supply drops, the prices of resources reach their maximum.
The competitiveness of developing countries causes that production is unprofitable in many areas of economy in the developed countries. In order to stimulate consumption, which is the driving force of economic development, societies in the developed countries quickly run up a debt.
The dichotomy of the world public finance deepens. In the situation when the national debt increases in the United States and the European Union, we can observe increasing reserves in the central banks of countries the economies of which are based on export, e.g. China, or of countries rich in resources, e.g. Russia and the countries of the Middle East.
The American finance system collapsed under the burden of increasing consumption paid for by the American society mainly with bank credits. The result of this situation was the declaration of bankruptcy coming from many financial institutions, ones which constituted the pillars of the world banking. In the second half of 2008, the developed countries began experiencing a deep economic crisis, second to none in many past decades. In the next year the budget of the United States became involved in saving bankrupting banks and companies, a decision which increased the already extremely high national debt. As a consequence, in the second half of 2009 the price of the American dollar dropped in relation to the main world currencies. The confidence in the dollar decreased considerably.
The limited confidence in the dollar results in record-breaking prices of gold. The demand on gold will strengthen until a new arrangement becomes clear in the world monetary system. Steps taken by the G20 group are only the beginning of a longer process, one which is supposed to bring a new order in the world finances.
