Gold continued its volatile trading in the fourth quarter of 2009, closing as high as US $1,212 per ounce in December 2009, pushed up partially by the IMF sale of 200 tonnes of gold to the Reserve Bank of India. Since its peak it has traded in the US $1,050-$1,150 range, with US $1,050 being India’s approximate purchase price.

This represents over a 300% increase in the price of gold since its low of US $250 per ounce back in 2001. A sign of a true gold bull market is when it is appreciating against all currencies and not only the US dollar. The US dollar has weakened significantly over the past months helping push the gold price up in US dollar terms, but gold also rose to new highs in terms of both EUR and GBP, affirming the fact that gold is currently in a bull market across multiple major currencies.

Gold has traditionally been viewed as a hedge against inflation. Some market analysts are predicting that inflation or even hyperinflation will become a problem once the economy recovers and governments are forced to repay the enormous amounts of debt currently being issued, however in the short term there seems to be more evidence that the world is in a period of deflation. Wages and prices have both dropped as a period of overcapacity and excess inventory is being endured. As a deflationary cycle is one of the least desirable paths for any economy, governments have been borrowing unprecedented amounts of money in an attempt to “re-inflate” their economies as the process of deleveraging progresses. The problem is that as governments essentially print money to fund their own expenditures, investors’ faith in the fiat currency becomes more and more strained. Gold has become a safe-haven for investors who are losing trust in paper money because of the massive liabilities attached to those currencies.