It is my opinion that the inflation that affects the price of gold will NOT be because of inflation in US$—the US$ is on its way off center stage. The 'reserve currency' battle is already being lost where the US dollar is concerned: countries are already actively avoiding using the US$ in trade agreements like the one now happening between China and Japan. But it's not just in trade agreements. Iran in having been kicked out of most of the world's central banking cabal is now using gold as a currency. Read this:
"...This week we're informed that Iran is using gold or oil to buy food as new financial sanctions have hurt its ability to import basic staples for its 74 million people. The difficulty paying for urgent import needs has contributed to sharp rises in the prices of basic foodstuffs, causing hardship for Iranians with just weeks to go before an election seen as a referendum on President Mahmoud Ahmadinejad's economic policies.
New sanctions imposed by the United States and European Union to punish Iran for its nuclear program do not bar firms from selling Iran food but make it difficult to carry out the international financial transactions needed to pay for it.
"Grain deals are being paid for in gold bullion and barter deals are being offered," one European grains trader said. Some of the major trading houses are involved. Another virtue of using gold is that barter or gold payments are the quickest option to get imports..."
"...Iran is a classic case of why gold is a last resort, reserve asset. Iran's currency is worthless outside its borders; its name is mud in the developed world -it's this that Alan Greenspan described as "in extremis".
He said, "Gold is money, in extremis". For Iran that is a very real and present situation now and gold is providing a rescue for them. It's doing the job it's expected to do. The most prudent investors in the world are central banks and those that have made sure they hold a good quantity of gold. Those who can now afford to are buying it up as fast as the market will allow.
Right now, the price of gold in the Iranian currency is sky high, but the value of that currency outside the country is zero. So much for gold prices in local currencies! When such a situation is reached, then what we have repeatedly said comes true,
"It's not the price of gold that counts, it's the number of ounces you have!"
Are there countries out there that could move down the same road as Iran? Can developed countries face the same situation? Maybe not so far down that road as things stand now, but in an uncertain future, that could happen to several rich and poor countries including the U.S.
If the dollar cannot hold its sole, reserve currency position and foreign buyers cease to accumulate more, the value of the U.S. dollar will fall heavily. The U.S. will then be forced to stop issuing dollars for imports but rather sell goods to earn foreign currencies -the same as all other nations have to.
If the Eurozone fragments, those nations leaving the Eurozone will have to turn back to their old currencies and a two-tier currency system. Then their gold reserves will take on extra importance. The continued doubts about Greece tell us that Greece is moving closer to default and to "In extremis" times. We now hear that despite it cooperative implementation of austerity measure Portugal's debt is still rising strongly as a percentage of GDP. As cash flow to repay debt contracts, it is inexorably moving into extreme times..."
The above is from Julian D. W. Phillips article:
Why Gold, 'In Extremis?' Are We There?
and gold continues to return to its position as the basis for money in OPPOSITION to the fiat currency—more from the same article:
"...We are watching the euro struggling stay up against the dollar despite the massive support the currency swaps have given the euro. Just one bank signaling distress may well be the single shot that started the First World War. Then lack of confidence in the monetary system in Europe will force a wider use of gold in support of currencies.
Gold as Collateral - to unclog money flows, but at any price
We have seen gold used as collateral by commercial banks and behind closed doors by sovereign states in the last couple of years. This has discreetly mobilized gold and returned it to the monetary role in a critical but shadowy way, so far.
Gold brings interbank/international liquidity to clogged credit markets, acting as a guarantee of repayment and allowing for the lowering of interest rates on interbank/international loans. This role supports the paper money system and does not oppose it. Banker's like that! They can love as well as live with gold in that role.
Whatever way gold is used, whether it be in an Iranian situation or to support the monetary flows between institutions, we are seeing gold's value prove time and again a vital, active, reserve asset!..."