With the huge amount of dollars that the Barack Obama administration is dumping onto the world markets, it makes perfect sense to wonder whether the value of those dollars will decrease as the supply continues to grow. Obama, Treasury Secretary Tim Geithner and Federal Reserve Chairman Ben Bernanke are fighting the worst economic downturn since the Great Depression. Since the summer of 2007 the world has lost tens of trillions of dollars in stock market value as a global credit crisis has locked up trust in lending between large, global financial firms.
The massive monetary inflation the world witnessed in 2009 will lead to massive price inflation as the world pulls out of the crisis and credit stabilizes. Price inflation will be sparked by the realization that there are too many dollars chasing too few assets around the world. Americans and others who work hard to save their money in dollars will see the value of their savings diminish as the worth of each dollar erodes. Thankfully, there is an answer to the dilemma of the ever shrinking value of the dollar.
Gold (along with other precious metals like silver, platinum and palladium) has a long history of holding its value even as fiat currency (paper money that is backed up only by the faith of creditors in the issuing government) loses its value. Gold in the form of gold coins, gold bullion and 24k gold jewelry has been used as a store of value for nearly 5,000 years all over the world. To give you an example of how well gold holds its value consider this:
In 1963, according to World Gold Charts, the average American home cost the equivalent of 550 ounces of gold. By 2008, that home would have cost just over 300 ounces of gold. This despite the fact that house sizes have DOUBLED since 1963.
According to Peter Schiff, President of EuroPacific Capital, the Dow Jones Industrial Average held a record high value of 44 shares of the DJIA per ounce of gold. Today that ratio stands at around 9 shares of the Dow Jones per ounce of gold. That means that during one of the most ferocious bear markets in history gold has actually rocketed higher in value against the stocks of the Dow Jones. When you look at what has happened to the shares of some of the most important blue chip stocks in U.S. history you wonder why anyone would trust the management of these corporations instead of the power of wealth preservation that gold provides. Would you rather place your money with AIG, Freddie Mac, Fannie Mae, Citigroup, Bank of America, General Motors, General Electric and U.S. Airways or would you rather place your money in good, old dependable gold stocks and exchange traded funds?
The choice is yours.
Source by Chris Michael Mason
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