Sri Lanka Spent $ 600mn on Gold in 2011 up Seven Times the Year before

06th January 2012, www.lankabusinessonline.com

Sri Lankans have spent a record 600 million dollars of gold in 2011 up more than seven times from the 82 million US dollars a year, the central bank said, as demand and prices for the precious metal rose.

"Gold in the past was very marginal, but we have seen a rapid demand for gold in our country," Central Bank Governor Nivard Cabraal said.

"That phenomenon has been share in many Asian countries like India. So there has been a rapid increase in the gold holdings of the people of our country."

He said 'pawning' or loans against gold have also increased in the country. Loans against gold is popular in Sri Lanka where women in particular held gold jewellery as a store of value.

Some financial analysts say speculators who bought gold, borrowed against them to speculate in other areas such as stocks.

Gold rose to around 1,600 US dollars an ounce in 2011 as central bank's in developed nations continued to print money and weaken then paper currencies.

Before the creation of the Federal Reserve Bank gold was just 20 dollars an ounce from 1792. Under a gold standard there was no sustained inflation in the world.

Periods of inflation (such as during the gold rush or the printing of the Greenback paper dollars for the civil war) were followed by periods of deflation bringing commodity prices back to previous levels.

The US Fed 'devalued' the US currency from 20 dollars an ounce to 35 in 1933, after triggering the Great Depression by printing too much money, barely two decades after its creation.