If the dollar continues to remain strong or get even stronger, it's a darn good sign there are big problems elsewhere in the world, problems that could easily light a fire under gold. On Wall Street, analysts such as those at Salomon Smith Barney pointed to steadily rising demand for the metal in jewellery. Scientific developments might also boost industrial demand for the metal or, at least, that is the hope of optimists. Gold is a conductive and soft metal that may find uses in catalytic converters and in wiring for electronic writing pads and other embedded computing devices. Yet repeated central bank sales of gold across Europe, coupled with tame inflation, have battered prices.
Most economists are unwilling to break the link between the strong dollar and gold.
Gold, is largely denominated in US dollars. The dollar, and dollar-denominated securities, have traditionally provided investors with a feeling of comfort and with valuable liquidity in times of crisis. In the same way, many modern investors have placed their belief in the US Federal Reserve, which determines interest rates and is responsible for managing the US economy. In the 30 years since President Richard Nixon ended the use of gold as a money standard, the price of gold has only occasionally risen in reaction to the Fed's actions, most notably in 1980 and 1981. No longer are the losers from bad investments confined to lenders to foreign countries, bankrupt hedge funds or bad banks.