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The price of gold has rebounded as the financial crisis drags on but the process of consolidating the weak with the strong is well advanced. How many more big names are left to implode and fuel further gains in the price of gold? The supply is dwindling it would seem.

Meanwhile, as the Financial Times of London reports, jewelry demand, comprising about 70% of gold end use, is tumbling. High prices and slowing economies are causing jewelry buyers to cut back. Also, scrap supplies are surging in response to higher prices.

Gold bugs anticipate galloping inflation from monetization of the government’s debt load, which is to be substantially increased by the requirement to rescue the financial sector. Admittedly, it’s possible the Fed may resort to the printing press but the forces of de-leveraging are way out front now, spreading ever stronger deflationary impulses. Expansion in the money supply won’t accelerate inflation when the economy is moving away from full employment.

Gold bugs anticipate a tumble in the U.S. dollar. Yet, government borrowing is destined to escalate because, as mentioned, of the imperative to rescue the financial sector; the higher borrowing in turn creates upward pressures on interest rates and, in turn, draws capital into the U.S. Besides, other currencies are not looking all that attractive either as the world economy sinks further into recession.

Source: More On Rising Dollar, Declining Gold