Why Gold Rose Above $1,400
As a semi-followup to the previous post, it should be noted that the effect on the price of gold is even stronger than the effect on prices in general for three reasons:
1) Because while the reduced opportunity cost of not holding long term bonds will increase demand for money (and thus reduce the dollar price of things which aren't assets), it will also increase demand for alternative assets such as gold.
2) Because of gold's special reputation as an inflation hedge, increased inflationary expectations will increase demand for gold even more than most other things.
3) Because it is a good that is traded on financial markets and therefore has especially flexible price, it will react faster than most goods and services on the increase in inflation.
Not surprisingly given the above points, gold reached today yet another all-time high. rising for the first time above the $1,400 mark.
1) Because while the reduced opportunity cost of not holding long term bonds will increase demand for money (and thus reduce the dollar price of things which aren't assets), it will also increase demand for alternative assets such as gold.
2) Because of gold's special reputation as an inflation hedge, increased inflationary expectations will increase demand for gold even more than most other things.
3) Because it is a good that is traded on financial markets and therefore has especially flexible price, it will react faster than most goods and services on the increase in inflation.
Not surprisingly given the above points, gold reached today yet another all-time high. rising for the first time above the $1,400 mark.
posted by stefankarlsson at 8:59 PM
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