Not those gems buried inside your nostrils of course.
Someone asked me about the relationship between Gold and USD. In order to explain this relationship, we need to refer back to history.
Historically, the USD has been pegged to the price of Gold and backed by the amount of gold bars one owns in the vault. However, with the introduction of the Bretton Woods International Monetary System in 1971, which resulted in abolishment of the fixed regime, this no longer holds true. What this means is, any country can print dollar bills without these money being backed by gold bars. “Funny money”, some experts call it. The implication is, if the Fed’s printers print money too liberally, it might lead to runaway inflation, since the money can be pump-primed into the economy and raise general prices. In reality, this is what the Fed is doing now … using funny money to ease credit and resuscitate an otherwide flagging economy.
The USD is regarded as the international currency of exchange as many countries are trading and making payments via the greenback. Hence, the world has placed much faith in this currency. In times of economic crises, banks/financial institutions/corporations prefer to hoard USD and this drives up the price of USD. However, when the economy normalises and risk-taking resumes, there would be less demand for the greenback and more demand for other physical assets such as real estate. This will simultaneously cause a drop in USD and lead to inflation since prices of real estate (and almost everything else) are being jacked up. Commodities such as precious metals and oil will also be priced higher to compensate for the relative drop in USD as these commodities are priced in USD. Hence, commodities are set to rise further, barring a deep and unforeseen economic recession.
Now that Gold has gone beyond a whooping 1 grand per ounce, does this symbolise that risk aversion has normalised and that the economy has stablised? Only time will tell…
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