Why is the value of gold rising?

March 10, 2008

gold coinHistory shows that gold prices rise when the people's faith in paper money - not backed by gold - falls. Gold is the eternal hedge against inflation and the effects that central banks have on the fiat money supply. Since modern currency is created out of nothing more than someone typing a few numbers into a computer, it's value is dependent upon convincing everyone that it has value. If you look at the financial pages of newspapers or web sites, you will often see various currencies compared to each other in value. The dollar falls against the Euro, the Yen falls against the Pound and on and on. These wild currency fluctuations, artificially created by the central banks, cause people to lose money, lose their savings and go deeper into debt. What is interesting is that, compared to gold, all of these currencies lose value against the rising price of gold. Throughout history, countries have been wiped out, currencies have failed, stocks and stock markets have tumbled -- but gold has never been worth zero.


Gold is the most stable currency a country could have. There is never a question as to what the financial status of the country is if all of the money is backed by gold. So why don't countries use the gold standard if it's so good? Because gold is a finite commodity. In order to expand your currency and fund things, you have to find more gold -- which costs money. Since governments and politicians want to always expand in big ways, the gold standard impedes their way. If you want to fund huge social programs, public works projects, global wars and other such high dollar things, gold will not do.

Instead, a system of central banks (the Federal Reserve in the USA) create money out of nothing. In this way, whatever a government wants to do, there is always plenty of money. All they have to do is print it and continue convincing the people that that piece of paper and the numbers on your computer screen as you look at your bank balance really have value. As long as the people believe that the money is real -- everything goes along as planned. The central banks play with the money supply, affecting business and the stock market and reaping huge profits for those that know how to play the game. All the while, the masses lose their wealth and instead are offered more and more credit by these very banks to make up for their ever-dwindling income. In the end all they have to show is a great deal of debt.

Central banks and governments try to control the price of gold by setting artificial prices for it and by buying and selling large amounts of it to keep it's price from rising. However, the laws of economics dictate that such a pyramid scheme, like all pyramid schemes, will eventually fail. What we are seeing today with gold approaching $1000 a ounce is just that. With gold at $1000 and ounce, up from $200 just a few years ago, it becomes clear that paper fiat currencies are becoming less trusted and worth less every day.

What does this mean for you?

Every day your paper money reduces in value. Everything costs more because the money worth less. If you are lucky enough to have savings your money is losing value faster than the interest it is gaining. Every time they raise the money supply (print more money) the value of your money goes down. Nobody knows how long this Ponzi scheme will take to collapse but like all such schemes, it eventually has to.

What can you do?

Of course the ultimate answer is to get governments to live up to their responsibilities to their people. Participating in government and the process is essential if there is to be any hope of changing anything.

However, one can not risk their future and family on the possibility that things may change. As we have seen gold ( and to a lesser extent, silver) is the only currency that has stood the test of time. Investing in and owning gold is both a weapon against the ravaging effects of inflation and the possibility of financial calamities. For the average person, the easiest way to buy gold is in gold coins like the American Eagle, Canadian Maple Leaf and South African Krugerrand. These coins can be bought from any coin dealer and are available on line form numerous dealers. The coins are sold at a small premium to the current spot price of gold and can be thought of more as gold bullion than collectible coins. These coins can instantly be converted into cash if need be and are easy to store for the long term.


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