The possible future inflation in the US economy has many investors concerned. Important to the preservation of wealth is how inflation and the global money supply is linked to the Price Of Gold. Strategies by central banks of quantitative easing will most likely devalue the world’s currencies will eventually leads to inflation based on past history.

To greater understand how the price of gold is affected by inflation you have to focus on the fundamentals of gold and the speed of money. As there is a positive growth in the supply of money, we find gold prices increase. This is believed to be one of the reasons that gold prices are up in 2010.

Important are the reasons for why there is an increase in the money supply. During times of economic growth a byproduct is an increase in total amount of money available. Another reason is during times of economic stress the monetary policy of governments is to print money to increase liquidity back into the markets. It is the second reason that the United States and the world find itself in today that has negative ramifications towards inflation though positive benefits to physical gold.

When monetary policies use injections of liquidity to support financial and economic systems instead of working to jump start economic growth, the price of gold is often a leading indicator that inflationary times are ahead. If you watch the value of the US dollar and the price of gold into today’s market you can see the correlation they share. The value of the US dollar and the price of gold do not occur in a vacuum. Gold prices are set based in the form of dollars so any change in the value of the dollar affects the price of gold.

Gold is considered more an asset that a pure investment. As gold is tied to the value of the dollar, gold coins and bars can be used to buy goods and services which make it different than stocks, bonds, and real estate. Over the last 6 months even a 1% change in the value of the dollar impacted the price of gold by 0.9%. Changes in the money supply around the world create similar changes in the price of gold as it relates to different currencies.

With current monetary policies to continue more rounds of quantitative easing, it is estimated that the demand for physical gold like gold bullion and numismatic gold will continue to stay strong.

Other factors have a relationship with the price of gold and inflation which is the velocity of money. Many experts interpret changes to the positive side for gold bullion to mark a sign that future inflation is ahead.

RECESSIONS AFFECT: MONEY SUPPLY AND GOLD MARKETS
The decline of the US real estate market in the summer of 2007 would start the free for all of the financial meltdown. The stress caused asset backed securities to drop in value at excessive high rates which would lead to the current recession the United States finds itself in today. The current time for the United States is one of the worst recessionary events in decades with GDP in 2008 reaching a paltry 0.6% growth. As an economy trillions of dollars in wealth was destroyed. Governments around the world stepped in and added measures that were reported to keep the economies of the world from even more collapses.

The Federal Reserve plus the US Treasury bailed out floundering financial institutions to the tune of $700 billion in the first go around. They didn’t stop there interest rates were lowered to record lows of 0-0.25%. If you thought this was only an American problem you would be wrong as England, Japan, Russia, China, and more to name a few all stepped in and used some aspect of economic stimulus with a goal to restart their respected economies.

There is debate on whether the bailouts and fiscal stimulus did save off further collapses or not. These monetary policy measures still come with price regardless if they worked or not. Starting in 2008 the global money supply drastically increased which leads many to believe rampant inflation is ahead.

Important to understand is that there is not 100% agreement on the extent of inflation for the future. The concern continues to grow for individuals over how best to protect their wealth remaining after the financial meltdowns of 2007 to present. It still remains the one asset that has increased for almost 10 years in a row for the price of gold.