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The price of gold is once again approaching the $1,000 plateau. Gold first hit this level last March before falling back near the $700 level by November. However, concerns about inflation and high government spending have once again propelled prices upward. As with many runs on gold, the weak US dollar is a major catalyst to the recent gold rally. According to the Wall Street Journal, some large countries that hold a lot of US debt, including China, Russia, and oil exporter Venezuela, have recently reported increases in their gold holdings. As the US racks up large amounts of debt over the next few years, these and other countries may buy more gold to diversify their foreign-exchange reserves and hedge their exposure to the dollar.

Purchasing gold as a hedge during times of inflation is somewhat of a modern luxury. Beginning in the 19th century, many industrializing nations adopted the gold standard, under which an individual nation's currency was convertible into pre-set, fixed quantities of gold. Under normal circumstances, any currency holder could exchange his or her currency holdings for a fixed amount of gold at any time. However, when a nation needed to boost expenditures (usually during times of war), that nation would often halt the convertibility of its currency into gold, as the gold was needed to fund the extra expenditures. The US and Great Britain did this during World War I, and Germany was forced to do this after the war in order to make reparations payments. During the interwar and Depression era, more countries abandoned the gold standard as governments worried that a possible run on gold (due to multiple banking crises in Europe in America) could lead to catastrophe.

After World War II, the price of gold was fixed at $35 per ounce under the Bretton Woods System, a system of international financial and commercial regulation agreed upon by a number of industrialized nations. This system lasted until 1971, when Richard Nixon ceased the convertibility of US dollars to gold except on the open market. Since then, the price of gold has fluctuated, and most nations have moved to either free-floating fiat currency or pegged their currency to the US dollar. This made gold a practical investment vehicle for individuals as well as large institutions, allowing either to buy gold as a hedge against currency devaluation.

As you can see from the chart below,

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Warren has been around Investors Observer since the early days.  His fingerprints can be found on most services offered here and many started out as one of his special projects. Mr. Stanley looks for below-the-radar news tidbits, company happenings, Wall Street whispers, economic trends and essential strategies others might miss. Then he digs in to find the whole story.  And… When he’s done he will share his findings here. One of Warren’s current interests involves strategies, tactics, and tricks of the trade for investors who don’t have a lot of cash to commit to the market. So expect these articles to especially help investors with $5,000 to $10,000 to invest. Many articles here will probably use ETFs and HOLDRs since these are a great low-cost way to play the market.