Jun 04 2008
Gold – The Real Money
There was a time in our nation’s history that gold was the basis for our monetary system. And it wasn’t just us. Most other currencies around the world have had some link to gold at one time or another.
As long as a currency is linked to a tangible asset, the value of people’s paper money savings is maintained since that asset cannot be created on a printing press. But that’s not how the system is set up today. We no longer have a link to gold and the dollar is now just a piece of government paper that can be printed without limit.
Consider this: Since 2001, the dollar exchange rate has been on a downward slide and the price of an ounce of gold has climbed from $271 to about $860. That means seven years ago the dollar was worth 1/271st an ounce whereas today it is only worth 1/860th an ounce.
How much lower can the dollar go? I have no clue but what I do know is that when it comes to a hedge against our currency’s depreciation, there is nothing I like better than gold.
But not many people today view gold as real money. I’m not shocked because you would have to be at least 74 years old to have lived during a time when a gold coin was commonly accepted as currency. The rest of the public continue to view money as the paper variety that slowly loses value year after year.
This may explain why investors often flee tangible assets during a stock market correction for the perceived safety of dollar-based investments, namely cash and U.S. Treasuries.
To me, the idea of a dollar-based asset offer any level of long-term financial safety holds as much reliability as Hillary Clinton tomorrow announcing her allegiance to the Libertarian Party. But I digress . . .
Other investors hedge the risk of a falling dollar by investing in the Euro. It’s a strategy I don’t want to use with my money because then the portfolio is tied to the far-left European economy and if the dollar is on the verge of extinction, by no means do I want the safety of my wealth resting on a paper money managed by foreign politicians.
So here’s the truth: Gold is still the world’s defacto currency.
If tomorrow a financial panic breaks out in the corner of the world that takes out the dollar, I am highly confident that the haven investors will flock to will be gold-related investments and other non dollar-based assets. Investors who are broadly diversified in those areas will likely be heavily rewarded.
The way I see it, you and I have no control over the government decisions that impact the dollar’s value so we might as well continue profiting from Washington’s blunders.
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