Ben Bernanke and the Federal Reserve have kept interest rates low for some time. Interest rates lie somewhere below a quarter point and a zero, giving people very little reason to save. Why should you save money when inflation could work against you and the money will not grow? Low interest rates also work to reduce the cost of borrowing. This could help businesses that want to expand, or the federal government that has trillions of dollars of debt that it needs to finance.
But the situation is much more complicated than that. Nothing happens in a vacuum. Low U.S. interest rates give foreign investors very little incentive to invest in America. And this is one reason why the U.S. dollar has been weak. Foreigners see that interest rates are very low in America and sell American assets. Instead, they invest the capital in other foreign markets or hard goods. Other countries -- while more volatile -- offer better return rates (that are greater than zero) on the money that is invested.
Recently, India bought 200 tons of gold, pushing it up to a record high. However, this record high of gold is also related to the recent lows of the U.S. dollar as foreigners would rather have hard assets than U.S. dollars.
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