Donald Luskin, chief investment officer of Trend Macrolytics, describes why gold is gaining favor with people concerned about the future of the dollar. Two caveats: governments sometimes seize gold when it becomes a very compelling safe haven; and, gold hit an all-time high at $1,100 in monetary terms, but $1,000 in 1980 (the previous high for gold) translates into about $3,000 into today’s dollars (adjusted for inflation).
On that note, anyone concerned about retirement income should think about the future in terms of purchasing power. If inflation jumps up to 10% (it reached 19% in 1981), money in savings accounts will be devastated. Inflation transfers wealth from retirees to workers.
Link: $300,000 of Gold, in the Palm of My Hand
The longer the Fed keeps interest rates at zero, the more worthless paper money becomes. That creates the impression that gold is more valuable — in fact, this week it hit all-time highs at almost $1,100 per ounce as the Fed announced the indefinite continuation of its zero-rate policy. But that’s not gold becoming more valuable. That’s the paper money in which the price of gold is denominated becoming less valuable.
In other words, gold is the constant. Its value doesn’t change. Its dollar price changes, but not its value. So when investors come to me and ask me how they can hedge against the falling value of the dollar, I always tell them to buy gold. [click to continue…]
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