OCTOBER 21, 2010
It’s been a long held belief that gold and the U.S. dollar share an inverse relationship. When one goes up, the other goes down.
Gold is considered by many to be one of the most stable minerals throughout history. Much of this is due to its consistency and the fact that it can be easily formed into bars, coins and other easily tradable items. When currencies see massive depreciation, many people find safe haven in buying gold.
One of the factors driving gold’s current bull run is the following chart…as you can see, the gold price in relation to major currencies in the world is up sharply over the last decade.
Courtesy of Kitco
What’s happening here? From looks of this chart, massive currency depreciation has been occurring.
To answer that question, we must first go back about 40 years and examine some actions taken by the U.S. Government and the Federal Reserve System, the central bank for the United States.
We can in fact pin it on one day – August 15, 1971. That’s the day Pres. Nixon cut the final tie between gold and the dollar. Following World War II, the dollar was pegged to a fixed gold price of $35 per ounce.
Foreign countries and investors could trade dollars for gold if they so chose.
But when too many people were doing this, the U.S. could not keep up and took the dramatic steps of completely de-linking its currency from gold. This move affected other currencies as well since they’re all tied to the dollar. Therefore, each currency was allowed to float so they became constantly variable against one another.
These events presented some great opportunities but they also presented some enormous risks as well. To deal with these risks, investors looked to precious metals like gold.
To see more about why buying gold can be a good way to protect yourself from currency depreciation and for some background on how we got to where we’re at, read Buying Gold as a Hedge Against Currency Depreciation, a new article in Provident Metals’ gold investors knowledge center.
And if you’re ready to invest in gold, take a look at ProvidentMetals.com’s wide-variety of gold bullion coins, bars and more
No comments:
Post a Comment