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The U.S. government’s proposed US$700-billion bailout plan would boost the nation’s debt ceiling by 6.6% to US$11.315-trillion and is putting pressure on the greenback as a result.

“As we get to the other side of this, the dollar will get crushed,” John Taylor, chairman of New York-based International Foreign Exchange Concepts, the world’s biggest currency hedge-fund firm, told Australia’s The Age newspaper.

Recent weakness in the U.S. dollar and turbulence in the financial markets are also helping gold regain its status as a universally recognized monetary anchor.

“The massive increase in the deficit is starting to make people rethink the shape of all sorts of things, including the dollar,” Alan Ruskin, head of international currency strategy for North America at RBS Greenwich Capital Markets told Bloomberg.

After central banks cut their gold holdings a decade ago, the trend may be reversing, particularly with Asian banks, according to analysts.

“I’d be surprised if the Chinese hadn’t been nibbling at the gold market when prices were lower,” Mark O’Byrne, director of Gold & Silver Investments Ltd. told the Wall Street Journal.

There is plenty of speculation surrounding last Wednesday’s single-day record gain for gold, but it remains unclear whether any central banks were big buyers.

“We could not see a footprint from a central bank,” Jon Nadler, an analyst at Kitco Bullion Dealers told the newspaper.

If Washington is successful in authorizing the debt package, more dollars will be created, said John Bridges, analyst at JPMorgan. This will be seen as inflationary. If Washington is not able to put it through legislation before the election, the market faces the risk of much more weakness and possibly deflation. Either way, it could be good news for gold.