Sound as a dollar?
The old joke is that a man gets a check-up from his doctor and the doctor comes back with all of the results and says "You're as sound as a dollar." and the man responds "That bad!"
Today the price of gold is now more than $1100 per once. The best way to look at the price of gold is as a blood pressure reading of the economy. We all know that high blood pressure is not good and the same can be said of the high price of gold. In many cases high blood pressure is the result of years of bad habits with a diet too rich in fat and salt.
This analogy is very similar to the bad habit of the government of putting too much fat in the budget. That is to say, over spending, funded by borrowing, is putting too many dollars in circulation. This causes the value of the dollar to decline so the cost of everything, including gold, increases resulting in inflation.
The analyst from Citigroup, David Thurtell, was quoted as saying "The dollar just continues to weaken and that's the main driver of gold."
But why does the dollar continue to weaken? The value of currency is based solely on the faith and credit of the government issuing that currency. If the dollar is weaker it means that the world's financial markets have less faith in the credit of the U.S. dollar so it is weaker. This is a signal that the world's financial markets do not have confidence in the current economic policies that the government is pursuing.
According to the CIA's World Fact Book the USA has a $13.8 trillion economy and the federal government owes 12 Trillion which means we have borrowed 86% of the total value of the U.S. economy. This is very close to the maximum amount of debt that we can reasonably carry. When a country reaches more than 100% of the total value of the national economy the value of that currency begins to fall dramatically, and hyperinflation takes hold. Hyperinflation means that the $20 co-pay the man in the joke paid his doctor for his check-up this morning up won't even buy a band-aid by lunch time.