Gold Sets New Records and Spurs Demands

It looks like the gold rush begins again as dollars continue to decline, and people that are afraid of inflation continue to store gold to preserve value.

Gold rose for eight sessions in a row in New York, the longest rally since 2006, and reached a record as a decline in dollar sparked demand for the precious metal as an alternative asset.

Gold touched $1,119.10 an ounce as the greenback fell as much as 0.3 percent to a 15-month low (according to the US Dollar Index). The fact is people are losing their trust in the value of not only the US currency but all paper currencies, investors around the worlds are more comfortable holding gold.

Gold futures for December delivery climb $10.40, or 0.9 percent, to $1,112.90 an ounce at 11:10 a.m. on the New York Mercantile Exchange's Comex division. Prices have gained every day this month, the longest advance since January 4, 2006.

In London, gold for immediate delivery jump to a record $1,118.88 earlier and traded at 1,112.82 an ounce, up 0.6 percent.

India's central bank last month bought 200 metric tons of gold from the International Monetary Fund for $6.7 billion. Sri Lanka also said it has been buying gold. That prompted analysts at Bank of America Merrill Lynch, Societe Generale SA and Barclays Capital to forecast further purchases by central banks, already the biggest holders of gold.

Vietnam will let some companies resume importing gold to stop prices from rising excessively, the country's central bank said today. Domestic bullion prices have gained on concern that the government may be forced to devalue the dong. The Southeast Asian nation banned gold imports in June 2008 to help narrow the trade deficit.

Meanwhile, the dollar index was little changed after sliding earlier to 74.774, the lowest since August 8, 2008. The dollar gauge has decline 7.7 percent since December, when the Federal Reserve cut U.S benchmark lending rates to between zero percent and 0.25 percent to help the U.S economy out of the recession.

At the moment, what the dollar outlook will be is a big question. But in short terms, it's pretty sure that U.S dollar will continue to become the victim of the carry trade, people are going to sell dollar and buy commodities. As a result, the price of commodities will keep on going higher.

In conclusion, the value of paper money in the next 3 years depends on efforts of the Federal Reserve and other Central Banks to bring about an economic recovery.