Gold Surpasses $1,000 on Fears of Inflation

February 20, 2009 by Afshin Yaghtin

money Fears fomented by long-term inflationary concerns over President Obama’s huge stimulus package drove investors to gold as a hedge against likely devaluation of the U.S. dollar.

Historically, the price of gold has been intimately wed to the value of the U.S. dollar. This was not difficult to predict. As the dollar loses value, gold gains it. It’s a time-honored maxim, set into motion when about a century ago, on March 14, 1900, the U.S. government passed the Gold Standard Act.

The Gold Standard Act Stated:

“…the dollar consisting of twenty-five and eight-tenths grains (1.67 g) of gold nine-tenths fine, as established by section thirty-five hundred and eleven of the Revised Statutes of the United States, shall be the standard unit of value, and all forms of money issued or coined by the United States shall be maintained at a parity of value with this standard…”

Back then, the price of gold was set at only $20.67 per ounce (48.38 times less than $1,000)!

This week’s stock market free fall has not helped matters either, with the Dow Jones shedding another $152 of muscle today, bringing the value, as I write this, to $7,313.74.

“There really is no other place to go,” says Leonard Kaplan, president of Prospector Asset Management. “People are scared.”

When falling house prices, stock market crashes, unemployment rates, recession, high deficits, fear of inflation, and the fact that the near future is unknown, tangible assets (not abstract investments) flourish.

Gold should continue to be a safe, hedge investment for the forseeable future. But if the recently passed stimulus package and the upcoming bail out impregnates our economy with Obama’s campaign-trail promise of “new hope”, be prepared to re-evaluate your gold holdings: life and the economy with it, can again experience a vast paradigm shift.

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