By: Mike Campbell
The group of the world’s 20 largest economies (G20) met in St Andrew’s, Scotland on the 7th November. As widely predicted, the leaders pledged to maintain the various financial support packages that have been put in place to avoid a greater catastrophe to the global economy than we have seen played out over the last two years. The news was welcomed by all the major stock indices which closed approximately 2% higher. The measures that G20 members have put in place over the course of the crisis run to a cumulative total of trillions of dollars. Ultimately, these support measures must be withdrawn and market forces allowed to re-establish themselves, but it looks as though they will be with us well into 2010. G20 members are concerned that removing this “financial life-support” too soon will kill of the tentative recovery that many observers believe is finally underway.
More sanguine analysts take the view that the current recovery is being sentiment led and that the economic fundamentals such as the profitability which drives share value in a particular company are yet to materialise. If these concerns become the majority view, another major fall will be seen in world markets as confidence ebbs away. These doubts, coupled with low interest rates offered by the major central banks are behind the rise in the gold price to new record highs. The precious metal was trading at an unprecedented $1107 an ounce, yesterday. Another factor in gold’s continuing rise is the weakness of the US Dollar on global currency markets.
The G20 nations also indicated that they would work towards tackling climate change and would “work towards an ambitious outcome" at the forthcoming climate conference in Denmark.