US is behind the gold price hike, but not China
It is the end of the US housing boom that caused large amount of hot money to rush to resource commodities like gold, oil and bronze and cause the sharp price rise of these commidities. China's demand didn't affect that much.
Guan Qingyou from Chinese Academy of Social Sciences gives further analysis to this conclusion in his article. It says that although the US Federal Reserve has increased interest rate for 16 consecutive times since June 2004, the international market hasn't reacted as expected. Prices of international resource commodities such as gold, crude oil and bronze continue to wildly go up. New York's COMEX gold has created a record high of 728 US dollars per ounce since 25 years ago.
In recent years, it is almost a common practice in the international market that whenever there is a price hike of resource commodities, people will attribute China's demand to the result. The recent news that China is going to establish strategic commodities reserve has become the main theme of the international market.
Wall Street Journal claimed that China's hungry demand for resource commodities has made them the hot estate now in the international market.
But in fact, the US unclear foreign policy has aggravated the opportunists' investment. It is never very clear how much hot money is in the international market. According to International Monetary Fund, the hot money in 1997 was about 7.2 trillion US dollars. Currently there are 8000 hedge funds with a value of one trillion US dollars equivalent estate in the international market.
Large amount of opportunist capital floated to real estate and resource commodities after the burst of bubble in US new economy and the crash of the internet fairy tale. With the adjustment of real estate market by the Federal Reserve, resource commodities have become the only good choice for investors. With the coming of large amount of hot capital, almost all the resource commodities' prices have gone up. We have seen the prices of gold, oil and bronze go up drastically, but in theory, the supply and demand didn't change much.
Guan Qingyou predicts that before the hot money finds its next target, it will continue to put its capital into the resource commodities to keep its value.
Generally speaking, the price hike of resource commodities has no doomed relations with the international situation or so-called China's demand. If the price hike was due to demand, then it should be obvious with the framework of demand and supply. But current international market is far from the traditional demand and supply pattern.
A young American economist used to say that 'Hatred is sown.' Similarly, in the international market, 'the lies are spread'. When some people spread the lies, they must benefit from it. In international market, lies are repeated to influence investors' expectation and those who spread lies will benefit from such expectations.
Behind the floating money's behavior is the imbalanced international monetary system. Since the collapse of the Bredwood System, there is no other system in the international monetary system. After 1978, the Jamaican Agreement took effect and influenced the international monetary system. But the system is very loose. The International Monetary Fund in charge of international monetary order and coordination of international monetary relations didn't play its due role of preventing and helping to solve debt crisis and monetary crisis. While the US solely enjoys the tax of making currency, it doesn't like to shoulder the responsibility of maintaining and coordinating international monetary order.
As the launcher of the International Reserve Currency, the US has kept a low interest rate and issued too much US dollar currency. The excessive dollar has led to the over-growth of global currency through its double deficit, thus the international opportunist capital can greatly influence the international market.
Famous economist Robert Mondale has explained why we are in such an awkward situation. 'Through the currency development history, one of the main themes is that the country that has the peak financial power always refuses to conduct international currency reform because this will decrease its own monopoly power.' Like it or not, China has to continue to bear consequences brought about by the imbalanced international monetary system and Chinese people have to continue to bear the price hike of gold and oil.
By People's Daily Online
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