Gold Price Struggles to Move Higher amid USD's Rebound
Source: Oil 'N Gold (6/18/09)
"Inflation may come from a surge in commodity prices and/or simulative monetary policies. . ."
Gold price falls back to $939 after rising to as high as $944 earlier as pressured by the USD's rebound. Yesterday, we mentioned that factors affecting gold prices include USD's movement, central banks' sales, inflation expectation, etc. Inflation may come from a surge in commodity prices and/or simulative monetary policies, which were the causes of inflation experienced through the 1970s and 1980s. Moreover, inflation can be caused by excessive creation of money—and currency debasement occurs as a result. This is the situation we are experiencing currently. As confidence in paper money is threatened, investors probably turned to gold.
Why gold but not other metals? It's because gold has been widely accepted and was used as a form of money in the past. Moreover, it's scarce, divisible, indestructible and storable, making it a convenient medium of exchange. Switzerland was the last country to back its money with gold.