(Commodity Online): US Currency debasement which stokes up inflation and lower interest rates are the two primary drivers of gold, according to Mark Hanney, Chief Executive Officer of Valbury Capital, a broking serveice fully regualted by the FSA.

Given the Fed’s announcement that it will keep interest rates low until at least the middle of 2013, investors who are longGold and short the dollar might well feel comfortable staying that way.”

As a response to its unsustainable levels of state and federal debt, and in an attempt to stimulate economic activity, the United States has adopted a deliberate policy of currency debasement. As with any market currency prices are set by supply and demand and as the Federal Reserve creates more dollars their value falls, and since gold is denominated in dollars, as the dollar falls, so the price of gold rises. Gold then is the anti-dollar, and gold’s decade long advance runs counter to the dollar’s decade long decline.

Back in 2007 the US dollar index [DXY] broke down through 80 – a level which had acted as support for 34 years – and with the likelihood of QE3 not too far away, the outlook for the buck is distinctly negative. In fact, famed technical analyst Louise Yamada, has a long-term downside target for the DXY of 60.

It is just over 40 years since Richard Nixon took America off the gold standard and over that period the greenback has lost more than 98% of its value compared with gold. Buyers of gold are simply trying to protect their wealth by moving out of paper currencies into the ultimate hard currency that cannot be created at will by central bankers. The question of how high gold can go is really a question of how low paper money can go.