INFLATION JITTERS; Gold Soars, Dollar Slides, Investors Hedge

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Byline: Patrice Hill, THE WASHINGTON TIMES

Worries about loose money and budget policies around the world sent gold soaring and the U.S. dollar slumping Tuesday, reviving a trend that threatens to reignite inflation for consumers while tarnishing the privileged reserve status of the dollar.

Gold broke through the $1,000-an-ounce barrier for the first time since February as investors piled into the best alternative to the dollar and a classic hedge against inflation. Worries about rising prices were triggered over the long weekend after the Group of 20 finance ministers at a London meeting stressed they are intent on maintaining loose money policies and will not move to lower bloated government deficits until the global economy clearly recovers.

Concern about inflationary policies by Congress and the Federal Reserve have weighed on the U.S. dollar in recent months, provoking talk about abandoning it as the world's reserve currency. The dollar's slide accelerated Tuesday after a new United Nations report endorsed moving away from the central role of the dollar in the world monetary system.

With yet another organization calling for a move away from the U.S. dollar as a global reserve currency, the dollar has come under pressure, said Adarsh Sinha, currency analyst at Barclays Capital, noting that the U.N. would like to establish a system of managed exchange rates like the European Monetary System in an attempt to stave off future dollar-related financial crises.

This radical suggestion at present seems far more remote than even the possibility of alternatives to the dollar as the dominant reserve currency, he said. A rapid shift by reserve managers away from dollars remains unlikely as it would be self-defeating for central banks from China to Brazil that have invested heavily in U.S. markets and would lose money if the dollar falls further, he said.

The case for a new reserve system is strong, but the alternatives remain unclear, he said, and that's why Barclays expects the dollar to decline only gradually over the next year.

News about the U.N. report and action by the G-20 sent the European currency soaring to $1.4520 from $1.4332 Monday in New York trading, reaching an eight-month high. Gold rose to $1,009.70 an ounce in New York before losing some of its gains to close at $999.80. Gold is within spitting distance of its all-time high of $1,033.90.

Investors have more money than clear opportunities, and much to worry about as central banks crank up their money-printing machines and governments splurge on debt, said Martin Hutchinson, analyst with BreakingViews. …