GOLD VS INFLATION OR DEFLATIONregardless of whether we see inflation or deflation in the United States, the price of gold in US dollars will rise if the dollar falls. It is as simple as that. If the US were the only economy in the world, and the US dollar the only currency, then we could have predicted what will happen to the gold price under either inflationary or deflationary conditions. But the reality is that gold is truly an international currency. Its price is relatively constant, and rises over time in proportion to the inflation of fiat currencies. When measured in one specific currency, such as the dollar, the gold price becomes inextricably linked to that currency’s exchange rate.
If you’re trying to figure out whether the gold price will rise or fall depending on whether the US experiences inflation or deflation you are wasting your time. In the short term the gold price in US dollars will rise or fall depending on what the US dollar exchange rate does. In the long term the gold price in US dollars will depend on the inflation rate of the dollar. Since the dollar is a fiat currency, it is bound to be inflated until it is worthless, however long that may take.