Saturday, June 12, 2010

Gold is money

For thousands of years, both Gold and Silver has been used as a monetary metal. People used bits of pure Gold to purchase and trade items of value. When fiat currency was started (paper money), in most cases, it was backed by a Gold standard.

In the early 1880's, the US dollar was backed by Gold in which you could trade in 1 dollar for 1.6 grams of Gold. This ratio would fluctuate until 1971 which is the year when president Nixon took the United States off of the Gold Standard.

The US Government was forced to print up more fiat currency for the Vietnam war which led to the devaluation of the dollar. As the dollar declined, it led to inflation. Because the US Dollar was devaluing, countries (Switzerland, France) demanded repayment of their loans in gold which depleted the US Gold reserves.

To stabilize the economy and curb skyrocketing inflation, President Nixon “closed the gold window” on August 15, 1971, ending convertibility between US dollars and gold.

If you have tracked the price of the US Dollar index from the early 2000 to now, you will see that is has been on a decline and the overall trend is down.

Here is a chart of Gold from 2000 to 2010 provided by Kitco:

When looking at the charts, you can see that over the past decade, Gold and the US Dollar have traded in opposite directions. This is not always the case, especially if you look at the past year (2009 to current 2010).

Many experts believe that there will be a decoupling of the US Dollar and Gold where they can both go up or down at the same time.

I suggest that people continue with their own research on this subject and think about investing a % of their savings into physical Gold and Silver. If the US Dollar continues it's decline due to government bail out packages and the general printing of fiat currency, inflation will become a major factor going forward.

An great ebook on Gold and Silver Investing that I have found can be found at GoldandSilverSecrets:Click Here!

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