The price of gold hit a new peak last week, rising above $1100 an ounce as the dollar weakened. Towards the end of the week it was still up about the $1116 mark, and industry commentators suggested several possible reasons for the commodity's sudden $20 jump. The leaders of the G20 countries had met over the previous weekend and pledged to continue with their fiscal stimulus measures. Emerging markets, including India have been adding to their gold reserves, and developed currencies continued to weaken, with the dollar sliding against the euro, which could all have been upward drivers of the gold price. Evy Hambro, the manager of the BlackRock Gold & General fund, says supply and demand is always the catalyst behind the price of the commodity. "The main point on gold is that it is attracting a fair bit of attention as a good way to capitalise on dollar weakness - this is part of the momentum behind the price of gold," he says. "Gold moves are not directly linked to anything except supply and demand. It does look as though there is an element of supply that is shrinking, and as that happens it will be a supportive factor for prices." Since gold has been seen as a hedge against inflation, does its sudden surge reflect growing fears of hyperinflation, as a result of quantitative easing? John Clarke, the chief investment officer at GHC Capital Markets, says no. "I think deflation is a bigger threat. People could be misguided, but I think gold is being used as a hedge against uncertainty rather than a hedge against inflation." Hambro says the price of gold would be higher if it had risen in line with inflation. "Gold has been an inflation hedge, but also a store of value. Gold should be $2800 per ounce if it had kept pace with inflation. Maybe it is recapturing some of this value." Copyright: Centaur Communications Ltd. and licensors

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