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Why gold rose above $1,400

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Arko Datta / Reuters / File

(Read caption) An employee of a bullion house shows gold bars in Mumbai in this 2009 file photo. Gold continues to soar to record highs as investors eye inflation risks.

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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.

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The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. This post originally ran on stefanmikarlsson.blogspot.com.


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