By Peter Costa

Gold has had an amazing year for 2009 growing as much as 20% to this date. With gold holding on strong at the $1050.00 an ounce level let’s take a look at the 3 major factors driving up the price of gold and why experts are expecting gold to hit $1300.00 an ounce by the end of the year.

1. INFLATION: When you expand the money supply it is just as guarantee as the law of gravity that inflation will follow. Since September 2008 the money supply in the U.S. has expanded by more than $3 trillion. This money has been used for bailouts, stimulus packages and anything else the economy has demanded. We have never embellished the money supply in such an immeasurable level since the inception of the United States. To make things worse the Federal Reserve is borrowing more money than any time in the nation’s history more than the period of 1789 to 1987. The United States is 1.8 trillion over the deficit as of the end of September; this means that the U.S. is now going to need to find lenders to buy up to 3 times that amount. There are no investors out there anymore China has a $2 trillion dollar reserve and Japan has a $1.4 trillion dollar reserve and combined it is not enough for the U.S. The U.S. is being forced to buy up its own debt which is insuring that the next step will be hyper inflation .

2. U.S. DOLLAR LOOSING DOMINANCE AS WORLD RESERVE CURRENCY: Rumors have been swirling around for some time now that several countries are planning to off-load their dollar reserves and begin settling international transactions in another currency. Secret meetings have been taking place with China, Russia, Japan, France, Brazil and some of the most powerful Gulf States to plan an end to their U.S. dollar dealings for oil. Meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme which if they have their way will mean oil will no longer be priced in U.S. dollars. Talks have included replacing the U.S. dollar with a basket of currency including gold . According to Chinese banking sources the transitional currency in the move away from the greenback with oil will be gold.

3. CHINA: It is common knowledge that China is not very happy with the greenback and the U.S. economy. They have been very vocal this year saying at the recent G20 summit that they want to be the new world reserve currency and want to create a gold linked currency. Along with these statements they have announced that they have been secretly buying gold since 2002 increasing their reserves over 600 metric tons. In addition they are now the world’s largest producer of gold and have plans to increase their already plentiful reserves. The IMF has been selling off gold recently in an attempt to create relief for the failing U.S. dollar. The IMF is in the process of selling 403 metric tons of gold and this time around China wants to purchase the entire amount in one single swoop. China along with India are now pressuring the IMF to sell their entire reserve of gold offering to purchase the entire amount. If China wasn’t driving the price of gold up enough they are now encouraging their 1.6 billion population, to purchase gold and silver. In an attempt to encourage personal ownership of gold and silver in China they are running daily commercials on television all across the nation.

As more banks continue to fail along with rising unemployment numbers in the United States it is safe to say the money supply will continue to expand. “The banking crisis keeps compounding and with Bank of America losing $2.2 billion from July through September things are only going to get worse” stated Ronald Fricke president of Regal Assets last Friday. If we do not get a handle on the excessive expansion of the money supply we could see unprecedented inflation rendering the dollar useless.