Rising Gold Prices Signal Inflation Worries
Judging by the run-up in the price of gold, people’s confidence in the U.S. monetary system has waned since 2001, but especially over the past month. Investors worry that inflation and a resulting weakening dollar will inflict lasting damage on the U.S. economy. It is this fear—and the excessive monetary growth that drives price inflation—that has pushed the price of gold above $900 per once, according to Alvaro Vargas Llosa, director of the Independent Institute’s Center on Global Prosperity.
“Unlike oil, whose rising demand has a direct connection to increasing economic production in places such as, the demand for gold is not tied to productive needs so much as to the psychological factor we usually call insecurity,” writes Vargas Llosa in his latest syndicated column for the Washington Post Writers Group.
“Gold, which used to be a symbol of the greed of empires, has ironically become a grass-roots revolt against the ‘imperial’ management of money by the state,” he continues. “In colonial times, gold was actually the creator of, rather than a safe haven from, inflation: by flooding the European market with bullion from the Americas, the Spanish empire caused a general distortion of prices. Today, the general distortion of prices—reflected in the credit and housing market crisis—has led people, through their investment fund managers, to rush toward gold in search of protection.”