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<p>[QUOTE=&quot;InfleXion, post: 1368752, member: 29012&quot;]Gold has one function, and one function alone, which is a hedge against inflation. Jewelry may provide some demand, but that&#039;s not a function. This function is why central banks have been buying it the last couple years even as it continues to break record highs, because they know (though they won&#039;t admit it) that as they continue to devalue currency that gold will be the beneficiary. I do not know where the 33% devaluation number comes from, but the FOMC did pledge to zero % interest rates through 2014 which means that as inflation continues to rise that negative real interest rates (interest rate minus inflation) will get more negative. The more negative that real interest rates are the more that inflation will occur. It is a vicious circle, because as banks can borrow money from the Fed at zero % interest they can loan it out for whatever they choose (~4% for example with home mortgages these days) and make a profit simply by making loans with money they don&#039;t even need to have, because it&#039;s conjured into existence for the purpose of the loan. In a closed system the gold price should increase by the same percentage as the money supply increases by, and the money supply increases due to these sorts of loans. This could all be reversed by intentional deflation, as in removal of dollars from circulation so nothing is guaranteed. However such a money supply deflation cannot occur unless the economy is healthy enough to handle the lack of liquidity. Price deflation is a different story and could happen even in an inflationary environment, but gold can potentially be immune to this if it is once again used for currency backing since the price of the currency would be driven by the amount of gold available to back it instead of the other way around.[/QUOTE]</p><p><br /></p>

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