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Old 10-16-2010, 18:48   #81
Big Bird
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Originally Posted by VBG23 View Post
How exactly do you reconcile those two statements? There is no correlation between inflation and gold, but gold is a good hedge against decline in the value of the dollar?


-The act of inflating or the state of being inflated.
-A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services.

I actually agre 100% with you, but this statement seems contrary to your other arguments so I am a bit confused. A decline in the value of the dollar is a major cause of inflation. So either gold is a good hedge against inflation or it is not.
Inflation in economic terms deals with the supply of money and the increase in prices related to that money supply. (or not)

The value of the dollar relative to other currencies is a different matter. For example the Chinese maintain a weak Yuan exchange rate to support their economies reliance on exports. But the relationship in price of the Yuan to the dollar has little to do with inflation. Likewise, the value of the Euro relative to the dollar has dropped--again less to do with the money supply and more a reflection of relative economic strength...

If you look at it a different way, gold is a proxy currency that is perceived to be a better risk than the dollar right now. When the dollar sags on the international markets gold increases in price and vice versa. While monetary inflation can certainly affect the pricing of money on the international markets there are a ton of other economic factors that will influence the price movement of currencies relative to each other. And again, if you consider that the dollar has moved a great deal over the last 32 years relative to other currencies then the fact that gold didn't move when we had periods of high inflation during that same period should tell you that inflation doesn't move the relative value of the dollar to other currencies.
Big Bird,

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Last edited by Big Bird; 10-16-2010 at 18:57..
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