The daily increase in gold prices came to a halt last month. For more than a year, the price has been skyrocketing, knowing only one direction — up. On April 2010 the market price per ounce of gold was slightly over 1.100 dollars and on September 5^th 2011, it reached 1.900 dollars per ounce.

Gold had an astonishing 70 percent revaluation in less than a year and a half, while most of the financial market was crumbling. The main reason for this price increase was three-fold. Firstly, it points to the Libyan conflict and the aftermath in the Middle East which includes the main oil supplying countries.

Analysts were not expecting these revolutions all around the region and therefore it was harder for them to understand the consequences. Could the revolution spread to more countries? Could the oil supply be endangered? Oil shortage lead to higher prices and from there to higher inflation rates. That is why some people prefer to invest money in assets rather than currencies.

Secondly was the instability of stock markets in both bonds and shares. Greece´s default crisis, the problems with peripheral countries in the European Union, and the sinking of the biggest share markets prompted investors to take the money out of these markets and invest in other assets with less volatility.

Third source of impact came from the weakening of the dollar. As gold is an asset exchanged within markets where the dollar is the main currency of reference, the weakening meant a higher cash per gold ratio and therefore a hit on the price. Since gold reached its peak on September 5, the market has sunk, dragging the price down along with it.

It is now 15 percent lower than the peak, slightly over 1.600 dollars per ounce. Once again there were three reasons; the dollar strengthening, a sale increase by people seeking to obtain cash to cover losses from other assets and the volatility of other markets has finally reached gold.

Still many analysts forecast a better future for gold, stating that this is only a temporary relapse. For instance Paul Blaxham, HSBC chief economist for Australia and New Zealand, stated a few days ago: “Our forecast for gold next year is 2.025 dollars per ounce… but it is difficult to ascertain where to set the lower limit now, because many tendencies currently happening are responses to political decisions.”

This opinion is backed by Ong Yi Ling, an analyst from Phillip Futures who believes: “in the long run, after the prices will have stabilized and they will get back to normal life, refuge values will come back slowly to lower prices. In 2012, still it is possible that gold reaches 2.000 dollars per ounce.”

So the fairytale story that gold is a secure value should be abandoned. It is a refuge value only for times of crisis, but it is not invulnerable in the greater and more permanent run. As all assets have their risks and benefits, it should never been considered a stronghold. Investors can be fortunate at times, but if they had invested last week, they would have withdrawn an investment with gross losses. Nobody is safe in these uncertain times.

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China owns America, according to the Tea Party. Although the recent rumor that China possesses a larger percentage of government bonds than the American government itself has been busted, the idea has sparked debate over the future of the global financial market.

China, the 3rd largest country (by landmass) with the second leading economy in the world, does in fact own the largest single share of foreign-owned American Treasury securities (36 percent), some $1.16 trillion. That’s 16 percent of total U.S. debt.

Back in 2006, it was calculated that China added $30 million to its reserves of foreign currencies every hour (Bonner, Bill: “China’s Dollar Reserves, America’s Debt”). China’s pool of reserves had topped $1 trillion, approximately 20 percent of all dollars worldwide. This immense cache is the result of a large current-account surplus, significant inward foreign direct investment, and big inflows of speculative capital.

Though this influx of foreign currency would theoretically have dramatically increased the worth of the Yuan, the Chinese government instead resisted this increase, keeping labor and exports dirt cheap for foreign investors.Thus, China has expressed concern over the security of its vast holdings.

Realistically, any nation should control assets denominated by several currencies, commodities, and direct overseas investments in order to avoid the sharp depreciation of any one type of asset. “We hope the U.S. government concretely takes responsible policy measures to increase the confidence of international financial markets and respects and safeguards investors’ interests,” the State Administration of Foreign Exchange said in a statement.

In an e-mail in August, Yu Yongding, a former advisor to China’s central bank, remarked that the U.S. Treasuries fail to provide safety or liquidity in managing China’s foreign-exchange reserves, worth $2.45 trillion. He went further to say that, in order to help lessen demand for the securities, China needs to curb the growth of its foreign reserves by pulling out of the currency market.

As a result, in the 12 month period ending in July, China has cut its holdings by about to 10 percent to $846.7 billion, according to the U.S. Treasury Department. Additionally, China and Russia came to an agreement in 2010 following the global recession.

In the agreement, they would use their own currencies for bilateral trade rather the commonly used American Dollar and other similar Western currencies. They may not be outright denouncing the dollar in this act, but they are certainly challenging its rule.

Image Courtesy of  http://www.flickr.com/photos/nznationalparty/

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