High Gold Prices Reflect Inflation Worries

Investors who have watched the price of gold soar in recent weeks did some selling Thursday. The price of Gold is more than $1,300 an ounce. The high price of gold reflects worry about inflation, the decline in the value of the dollar and general uneasiness about the economy.

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STEVE INSKEEP, host:

NPR's business news starts with soaring gold prices.

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INSKEEP: Maybe not a good week to buy your loved one a gold chain. Gold prices hit a new record this week - sort of. An ounce of gold reached $1,362 before slipping slightly. Now, way back in 1980, gold hit $800 an ounce, and if you adjust that price for inflation, it would work out to $2,200 today. So strictly speaking, $1,362 isn't a record but its really, really high, and gold prices are up sharply this year.

NPR's Wendy Kaufman tells us what's driving this surge.

WENDY KAUFMAN: The high price of gold reflects worry about inflation, the decline in the value of the dollar, and general uneasiness about the economy. Yesterday, there was some surprising and relatively good economic news, and that prompted investors to sell gold.

New unemployment claims were down last week and if that trend continues and the economy picks up, the Federal Reserve is less likely to pump additional money into the economy - a move that could increase inflation and weaken the dollar. In short, when the economy is improving, gold is less attractive as a hedge against inflation and a declining dollar. Still, consumers with old rings and gold chains to sell are reaping the benefits of the high price of gold.

Brian Lurie is the co-owner of Yuppie Pawn in suburban Seattle.

Mr. BRIAN LURIE (Co-owner, Yuppie Pawn): Couple of years ago, we were paying three and four dollars a gram, now we are paying 10, 11, 12, 13 dollars. Were paying more.

KAUFMAN: As to where the commodity price of gold is headed, some analysts predict it could top $2,000 an ounce within a few years.

Wendy Kaufman, NPR News.

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