Few assets both confound and fascinate investors or politicians like gold. Like stocks, there is a great deal of conventional wisdom and many rules of thumb regarding what makes gold tick, but many of these notions fail careful inspection. Gold is an inconsistent hedge of inflation and hardly an international proxy for "real money," but it does seem to be a global decree on the current state of government policies and the near-term economic outlook. The past 10 years have offered up a lot of evidence and anecdotes as to what really matters when it comes to government actions ultimately influencing the price of gold. (For more on gold, read 8 Reasons To Own Gold.)
In the Beginning
Looking at a long term chart of gold, the price really started to get going around mid-2001. One of the first things that President Bush did in his administration was to pass a major tax cut; a cut that even in the day looked to reverse a lot of the fiscal solvency achieved during the prior Clinton administration. When the September 11 attacks occurred later that year, gold prices spiked again on a rather more familiar "global chaos" trade.
As time went on, there was more and more concern about deficits and government profligacy. Then-Vice President Cheney's comment that "deficits don't matter" arguably highlighted this concern, while the U.S. government began a program of heavy deficit spending to fund new counter-terror military efforts.
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http://financialedge.investopedia.com/financial-edge/0911/Of-Gold-Greeks-And-Governance.aspx#axzz1Y1QV93yF
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