Gold and the mighty US Dollar

During the last three months, my understanding of economics has been challenged significantly by the movement of Gold and US Dollar.

I always thought that the more deficit financing (or printing money) is done, the less the value of the currency. I also thought that the greater the fiscal deficit, the lesser the value of the currency. To put it another way, if you have too much of currency around, then each unit of the currency has a lesser value compared to something that is limited and does not increase significantly in quantity (i.e. Gold).

So by that token, I was expecting Gold to be in the vicinity of around $1100 per ounce by now. I was quite confounded by the repeated plummeting of Gold and the unstoppable raise of the US Dollar. Going through my online research, I have uncovered quite a lot of theories that attempt to explain the current phenomenon.

One school of thought which I think is quite credible, believes that American investors and corporations are selling off their international investments and bringing home dollars. This leads to demand for dollars and thus an increase in the value of the Dollar. This school of thought believes that soon the value transfer will stop and when that happens, the dollar will plummet. As the dollar plummets, the dollar denominated Gold will increase in value and gain its rightful place in the asset value rating.

Only time will tell if this is true!