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Dollar
September 20, 2009

Will the failing dollar increase investor interest in gold?

Dollar

“Weak dollar has investors seeking safety

- Gold prices have recently risen above $1,000 an ounce, mostly because of a weak dollar that's driving people to other investments they perceive as safe.

How is the increase in price - which has accelerated in recent weeks - likely to affect jewelry shoppers? What about people who invest in gold, or the economy as a whole?

Here are some questions and answers about the high price of gold.

Q: Why are gold prices rising?

A: Analysts say the price of gold has been rising predominantly because of the weakening value of the U.S. dollar. Typically gold prices move in the opposite direction of the dollar, so as it weakens, gold prices rise.

The reason: When the value of the dollar, often considered the world's reserve currency, is falling, investors often turn to gold as a relatively safe alternative place to put their money.

‘When you have currencies weakening and there's no currency of choice, you move to gold,’ said Carlos Sanchez, an analyst with CPM Group in New York.

And it's not just a weak dollar that can have this effect; investors' worries about further weakening can boost gold prices even higher.

Q: Why is the dollar weakening?

A: It's largely because of concerns related to the massive stimulus spending by the U.S. government to spur the slumping economy, which some worry could eventually lead to inflation. As inflation grows, the value of the dollar could shrink.

That continued spending and potential for inflation has also led some major investors in U.S. bonds, such as China, to say they would curtail their purchases of such dollar-denominated debt. Weakening demand for these bonds would likely push the value of the dollar lower.”

*This information is solely an excerpt of a third-party publication and is incomplete. Please subscribe to the referenced publication for the full article. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.

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