Tax & Financial Consulting Services
"Opposites that Will Never Attract"
You don't have to be an economist or trader to understand the relationship between the U.S. dollar and gold.
You can sum it up in one sentence: the US dollar and gold are exact opposites. They are as different in pricing as ice is to hot water. A fall in value of the dollar represents a rise in dollar value of gold. That's just the way it is. And that's the way it will remain as long as we live in a world where the dollar is backed by nothing but false promises, while gold still represents real value (see conf call "The Gold Standard").
US Politicians in the 20th century severed the link between the dollar and gold for one simple reason. With a gold-backed monetary system, or gold standard, the politicians had to watch what they spent. Under a gold standard, gold gets drained away from countries that lack fiscal discipline. Instead, gold flows into the countries whose politicians have learned to reign in their desires to spend.
Politicians came to understand that money manufactured on promises is virtually unlimited. If they took the gold standard away, they could spend as much as they liked. They could also buy all the votes they wanted with dozens of spendthrift policies. Apparently politicians chose to ignore the fact that this lack of economic sense spawned one global currency crisis after another in the past.
We all inherited what's left of this economic policy. We are left with a global monetary system whereby a massive amount of real goods and services are traded across national borders for worthless pieces of paper. (Look at your dollars...notice what it says at the top "Federal Reserve Note"). Last I looked a note was a promise to pay, promise to pay with what?
We hold most of our wealth in dollars backed by promises from a government that must rely on others to make good on those promises. Is it any surprise why gold continues to rise in value as the buck beelines toward new all-time lows? The only surprise is why gold hasn't surged even more. But guess what? Gold is going even higher...expect it to go as high as $2000 per ounce. I use to think this estimate was high but as I watch the U.S. government continually overreach domestically and internationally, while our national treasury writes blank checks as far as the eye can see.
When the link between money and value is severed, it's only a matter of when-not if-a currency crisis will arrive. When that happens, you want to be holding some tangible assets like (gold, silver, other country currencies, etc) rather than IOU's aka Federal Reserve Notes from a government that can't will not be able to keep its promises.
But, you can diversify your wealth out of the dollar and invest in strength of gold with the All Weather Portfolio at Everbank www.everbank.com. If your investment advisor is still saying leave your money in there and ride the wave( i.e. invest for the long term), fire them and get smart.
Tax & Financial Consultant, RFC
866-361-3872 toll free fax
"Those who do not learn the lessons of history indeed are condemned to relive them."