Analyst estimates that price of gold is to keep a high floor

Problems and uncertainties facing the global economy, particularly the debt crisis in Europe, have hit the prices of commodities, which have declined in the past weeks. Gold is one of these commodities and, in the case of Venezuela, it accounts for 73% of international reserves held by the Central Bank of Venezuela (BCV).

As a result, when the price of gold falls, Venezuelan international reserves tumble as well. International reserves are used by the government to pay imports and debt obligations. Therefore, when the price of gold sinks, Venezuela s capacity to meet those commitments dwindles.

However, despite the uncertain world economic outlook, economist Ángel García Banchs believes that the price of commodities will not see a sharp decline in the next few months. "Falls in the price of gold and oil are limited. (These commodities) have a high price floor," said the director of economic research firm Econométrica.

He stated that the monetary policy implemented by the US Federal Reserve System (Fed) ant the European Central Bank (ECB) has contributed to "artificially inflate the price of commodities." 

"The United States and the European Union have almost doubled the size of their portfolios since 2008 to date. This has led to a massive injection of US dollars and euros that have come to investment banks and have led to overvaluation of raw materials, among them gold, oil, the stock markets, bonds, etc.," the economist said.  

García Banchs added that if the international economic outlook worsens, the Fed and the central banks have promised that they would pump more money to prevent further collapse of the economy. "It means that investment banks are not betting on a slowdown."

However, the analyst warned that this situation may change in 2014, when the Fed and the ECB have pledged to change their monetary policy and increase interest rates. As a result, part of the money that is in circulation would be taken out of the economy. "This could lead us to a complicated situation," García Banchs conceded.

Translated by Gerardo Cárdenas