Gold vs. The Dollar

Everyone knows that we are in the midst of the greatest recession since the Great Depression, with unemployment hovering at around 9% nationally, and even higher in many states across the nation. Unfortunately, unemployment is only one of several symptoms indicating this country's economic woes.

Since the Unites States went off the gold standard in the 70's, we have witnessed the devaluation of the dollar. In 1971, gold and paper money officially went their separate ways, as the U.S government no longer guaranteed the national currency with a fixed rate. Precious metals no longer back up the value of our dollar bills. As a result, the U.S dollar becomes more and more worthless every year. Fiat currency continues to fall, but gold will continue to be on the rise for years to come. A falling purchasing power has been taken for granted, while gold either maintains its value over time or rises in the face of economic uncertainty-as is the case today.

For the last 50 years, this has been the reality of fiat currency. Since just July of 2001, the dollar has already lost 30% of its purchasing power. Simply printing money to cover U.S debts floods the market with a weaker dollar bill. However, you cannot "print" more gold. We are stuck with a fixed amount of the precious metal, making it a much better indicator of wealth.

On the other hand, the value of gold has not changed significantly the past 50 years. 50 years ago, in 1961, we were still on the gold standard. One troy ounce of gold was worth $32.25. 10 years after that we went off the gold standard but the change was modest, to $40.62. In the late 80's gold reached a temporary high of $447, only to fall back to $271.04 by 2001. However, we are in the middle of another upswing. In 2006 gold prices had risen once more, to an astonishing $603.46. By 2011, this figure has more than doubled. As of August 20th 2011, one troy ounce of gold sells for about $1,800.

The gold to dollar ratio grows smaller and smaller as more money is needed to buy less gold. As the dollar grows weaker in comparison to other national currencies, we can expect gold to climb even further upwards. Protect Yourself  Now

You don't need a weatherman to know which way the wind blows. And you don't need to be a professional market analyst to know that the U.S only continues to dig its own financial hole. It is in times like these that investors remember precious metals as an important store of value. As a result the demand for gold and silver has completely skyrocketed in the last few years, as people scramble to protect their wealth. After all what is a dollar bill besides paper with a promise?

Despite promises, the dollar continues to fall. Have you noticed that your money just doesn't go as far as it used to? This is not a coincidence; the dollar is stretched almost to its breaking point. Consumer inflation has reached a 3-year high, without any evidence of economic recovery in sight. The Consumer Price Index, which excludes food and energy, jumped another 0.3% this month, the largest gain since 2008. Headline inflation is up 3.6% from a year ago. We are in the midst of a terrible recession, and printing more money is not the answer. In fact, printing money will only worsen inflation, leading to a loss of purchasing power. This means that we will all have to work harder and for longer hours and earn more money just to maintain our current lifestyle and afford the same things. You've noticed that your dollar buys less and less-less clothing, less food, less necessities. Every second that your wealth is stored in and measured by paper currency you are losing money and losing your purchasing power.

Stop this and protect yourself now. The sooner the better. As of August 2011, not only has the United States seen the first downgrade in credit rating in history, it has also witnessed the Dow close at record breaking lows. Wall Street and stocks were never safe bets and now this is truer than ever. No one is sure how much more prices will fall. Housing and real estate are burst bubbles that are just beginning to recover from speculation and continue to behave erratically.

Precious metals are not bubbles. Gold and silver have real, tangible values that have not wavered for the past 50 years. True, prices are at record highs today. But this is no reason to delay buying in and beginning protecting yourself against the ravages of the dollar. In fact it is better to buy in now before prices continue to climb, as they are expected to do for quite some time. No one knows how much lower the dollar and stocks will fall, but historically the gold-to-silver and dollar-to-gold ratios are good indicators of gold price. One day gold will plateau and start to go back down in price. In the long run, however, history has taught us that gold will always be a dependable "crisis commodity": holding its value and resisting volatile market forces. If and when gold prices begin to fall, you can rest easy knowing that they can never fall the way the dollar does. While gold tends to hold its price or appreciate in value, the dollar slowly disintegrates day by day, as inflation is the price we have chosen to pay in order to sever the bond between paper currency and gold and allow the two to fluctuate independently of each other.

Diversify your portfolio and defend yourself against loss of purchasing power. We are still in the middle of a long climb upward, and it is not too late to protect your hard earned money from the effects of the printing press and partisan fighting in Washington.