Sri Lanka watchful; US dollar weakness pushes gold higher

Apr 20, 2011 (LBO) – Gold futures hit a new high of 1,500 US dollars an ounce amid concerns about the US currency and budget deficits, with one state passing a law to make gold and silver legal tender. Modern fully paper fiat money, which a central bank can pass to the population in unlimited quantities and generate high levels of inflation started in 1971 when the US dollar cut its last links to gold and floated its currency. At the time gold rose above 80 dollars a ounce.

This week’s lowering of the outlook of USA’s AAA debt by Standard & Poor’s has shaken countries with large US debt, with China, the largest holder of US debt calling on the US to improve policies.

Staunch ally Japan said it still wanted to by US Treasuries and expressed confidence that the US will eventually fix its finances.

Pegged

Sri Lanka whose currency is pegged to the US dollar and also has commercial dollar loans with floating rates indexed to the Euro dollar rate as well as fixed rates.

Sri Lanka’s central bank has large US dollar reserve assets and the entire economy is de facto anchored to the US via dollar peg.

Last year the Central Bank had also sold down a part of its gold reserves