As we near the end of the first quarter of 2011, the potential for a widening of the uprisings in North Africa and the Middle East has pushed oil prices past the $100 mark. Long before the riots began, commodity prices had risen to uncomfortable levels, having soared over 30 percent in a matter of months.
Currency creation by emerging market central banks was, and is, a major factor behind the rise in oil prices. Egypt's M2 money supply, for example, rose 13.3 percent during 2010, while China's M2 money supply increased by 17 percent and India's M3 money supply increased by 15 percent. When currency creation outpaces GDP growth, too many artificially created rupees and yuan and pounds and euros chase too few goods, and price inflation results.
In an economy largely propped up by quantitative easing and money supply expansion, three dominant factors are likely to impact gold and precious metals prices in 2011. They are:
- Movement away from currencies
- Central bank buying
- China
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