In 2008 and 2009, gold prices will fall as and when inflation expectations fall due to higher base effect and the chances of US economy moving away from recession rise.

Before the start of 21st century most of the countries were dependent on US retail demand for their growth. Europe exports nearly one-third of its goods and services to the US. Japan and other countries were also dependent on US demand. Higher growth rates and subsequently higher demand from China, India and other nations have resulted in a world less dependent on US economy for growth. Indian economy is more dependent on domestic demand for growth and less dependent on exports. Higher commodity and energy prices have benefitted Russian and Brazilian economies more than any other country. Indian GDP is growing around 9%, while Chinese GDP growth is over 10%. The world is now less dependent on the US economy for growth than it was at the beginning of the century.

The US economy needs more than $2 bn a day of foreign investments to run its economy. Its trade deficit and budget deficits are on the rise. Foreign investors are apprehensive of investing in the US and are investing in non-dollar investments. Even retail investors are investing in instruments which are not priced in US dollars. As a result, emerging market equities like India, China are witnessing continuous rise in foreign portfolio flows. BSE Sensex has risen nearly 320% between 2003 and 2007, while the US dollar Index has fallen 25% between 2003 and 2007. The spot gold has risen nearly 160% between 2003 and 2008, whereas Dow Jones has risen just 59% between 2003 and 2007. US equity markets have underperformed Asian equities between 2003 and 2007. US dollar's decline and rise of gold prices is due to the slowdown of the US economy.

Gold Price, Gross domestic products, GDP, Bombay stock exchange, BSE, Gold Exchange Traded Funds, GETF, Sovereign Wealth Funds, SWF, BRIC nations, Foreign investments, Retail industry, Indian economy, Global economy, New York Mercantile Exchange, NYMEX.