The gold price continued its advance to new all-time highs, buoying gold mining stocks as investors sought refuge from the potential inflationary consequences of global policy makers renewing their commitment to expansionary fiscal and monetary policy at this past weekend’s G20 meeting. After the gold price traded to a high print of $1,011.20 in early morning trading, it held steady throughout the course of the day, closing up $7.62 to $1,103.37 per ounce.

Gold mining stocks rallied in concert with higher gold prices, as the Market Vectors Gold Mining ETF (GDX) rose $1.66, or 3.5%, $49.28, a new 52-week closing high trading at its highest level since March of 2008. Gold mining stocks, after lagging the appreciation in the price of gold, have been catching up, delivering the leverage to the gold price that many promised to investors. The GDX closed higher for the sixth consecutive day, posting a 16.3% gain in November.

A declining U.S. Dollar, which as measured by the Dollar Index (DXY) fell to a new 52-week low, provided a tailwind for gold-related investments. Declining risk aversion fueled the initiation of the further dollar carry trades, whereby investors use low-yielding U.S. dollars to fund other higher yielding, and riskier, asset classes.

A recent research note from Barclays plc pointed out that the dollar’s declining share of global currency reserves is almost completely the result of lower valuation rather than due to efforts by central banks to diversify their holdings. In the note, Steven Englander, chief U.S. currency strategist at Barclays, commented that the dollar’s share “has declined because the U.S. dollar is not worth as much, not because central banks have been able to substitute other currencies. If the value of the U.S. dollar had not changed, its share in reserve portfolios would be virtually trendless.” Furthermore, according to an International Monetary Fund report from September 30, 2009, the dollar’s portion of global reserves declined from a high of 72.7% in 2001 to a low of 62.8% in the second quarter of 2009. Whether central banks take more active steps to reduce their percentage of dollar-denominated assets is an open question, but recent actions, such as India’s purchase of 200 metric tons of gold bullion, suggest the answer to this question is an affirmative.

The fall in the dollar helped to propel a broad based rally in the financial markets, as the Dow Jones Industrial Average rose 203.52 to 10,226.94, a new high for 2009 and the index’s highest level since October 3, 2008. Market participants took their cue from the G-20 commentary and global leaders’ commitment to fight deflation. The prices of equities, commodities, and emerging market currencies all moved higher, in addition to the aforementioned rise in the gold price and gold mining equity sector. How long the public sector can plug the gap in private sector demand is an issue that has weighed on many Wall Street analysts. Furthermore, what is the price to be paid for this unprecedented effort to stimulate the stagnant global economy? One answer is a tremendous decline in the integrity of fiat currencies, and a much lower future purchasing power of global currencies. Gold, which has no liabilities associated with it, is one place that investors have looked in order to insulate their wealth from the insidious tax that comes with monetary inflation.