We are in a financial crisis and the economy is in a state of turmoil. Gold prices are currently hovering and maintaining their four figure price. The weak dollar is the driving factor in why investors are seeking gold. They perceive gold as a safe investment.
Gold prices are rising because of the weakening value of the U.S. dollar. Traditionally, gold has always moved inversely or in the opposite direction of the dollar. When the dollar weakens, gold prices rise. The dollar has long been considered the world’s reserve currency. When it starts to fail, investors and consumers alike begin fearing for their investments. They begin to invest into gold bullion as a safe haven investment, because it is backed by value.
Also, when currency values begin to decline and there is no clear indication of which currency is the currency of choice, investors will turn to gold. Gold has long been considered the crisis commodity or currency. If investors are worried about inflation or the future of a currency, they will seek gold.
Current Value of the Dollar
The current value of the dollar depends on a lot of factors. The dollar is weakening now because of concerns related to the amount of debt the United States government is accumulating. The government is trying to spur or stimulate the economy via stimulus spending and going further into debt.
Investors, industry insiders and analysts worry that the current amount of spending will lead to inflation. The unemployment rate is up and consumers are seeing less and less disposable income. This raises worry that inflation is on the rise and the value of the dollar could shrink significantly.
Continued spending by the U.S. government and the slumping dollar will contribute to the growth of gold in coming weeks. The prices will continue to rise if the economy stays in its current state.