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To: waverider who wrote (5471)	11/19/1998 12:23:00 AM
From: 007	Read Replies (2) \| Respond to of 14427

At the risk of being rude (you asked LT), I'll give a summary as to why a falling $ increases the value of gold: First Falling dollar has no effect on the value of gold, it merely alters the $ price of gold because the dollar is losing value. Think about it; if you have two exchangeable items and one loses value, then it will take more of the one that has lost value to equal any given amount of the other. Second Gold is a primary store of value, but so are dollars and dollar denominated securities. Since international holders of dollars and US Treasuries price all of their assets in their own currency, they lose money on their dollar holdings immediately when the dollar drops, making gold more attractive as a store of value. Gold will tend to be bought and dollars sold. Increased demand causes increased value. (The Euro is unproven and therefore unfit for reserve status - it will take time). Third Declines in the dollar's value are symptomatic of structural problems in the US economy, such as debt problems and trade imbalances. These structural threats tend to undermine confidence in the economy and the currency itself, causing a flight to safety. As the only accepted store of value that is nobody's liability, gold is the ultimate safe haven. Increased demand increases value. Fourth Declines in the value of the dollar have an inflationary effect within the US (dollar price of goods and services rises due to decreasing value of dollar - see First above). If the inflation rate becomes high enough, Americans look for ways to prevent the value of their savings from eroding away. Since gold rises when the dollar declines, it becomes a favored investment in inflationary periods. This was the primary cause for the last great bull market in gold which developed into a hysteria and reach its climax in 1980. OO7