Gold, the Shadow Currency

All great debt-ridden societies either collapse under the weight of their accumulated debt, as did the U.S. and Europe in the 1930s, or they keep running the printing presses until their currencies become worthless and their economies fall into chaos. This time around, governments the world over have clearly chosen the second option.

Now, what does a collapse in the value of the dollar mean for your finances? First, it hurts people on a fixed income, because the value of each dollar they receive plunges. Ditto for those who are owed money, because they’ll be paid back in less-valuable dollars (hence the disaster hitting many banks). Bonds, which are basically loans to businesses or governments that promise to make fixed monthly payments and then return the principal, will be terrible investments, since they’ll be repaid in always-depreciating dollars.

The only unambiguous winner is gold. For the first 3,000 or so years of human history, gold was, for a variety of still-valid reasons, humanity’s money of choice.

As recently as 1970, it was the anchor of the global financial system. And since the world’s economies severed their links to the metal in 1971, it has acted as a kind of shadow currency, rising when the dollar is weak and falling when the dollar is strong.

Not surprisingly, gold languished during the 1980s and ’90s, drifting lower as the dollar soared, and being supplanted by the greenback as the standard against which all things financial are measured. But now those roles are reversing. As the dollar suffers one of the great meltdowns in monetary history, gold will reclaim its place at the center of the global financial system, and its value, relative to most of today’s national currencies, will soar.

[Excerpt of book by James Turk and John Rubino]