As published in Nashville Christian Magazine Dec 2010

Gold hits $1400 per ounce.

Less than a dozen years ago, gold was trading at a multi-decade low of $260 per troy ounce. The events of September 11, 2001 set into motion a series of events that can be traced as the origin of today’s world record price of $1,400.00 per ounce. Up over $300 per ounce in the past year alone, and with recent actions and announcements by the US Federal Reserve, it seems that gold wants to test even higher levels. $2,000 gold anyone?

Gold was up over 25% in the last year. Is this normal? Will it continue? We get questions like these every day, but polish our crystal ball as we may, no magic answers appear! But what we do know is that like any other commodity, the price of precious metals is cyclical and runs in phases. For many of the years between 1982 and 2002, the price of gold hovered consistently in the $400 range. Boring and almost lifeless, often called “a relic of the past”, gold was looked down upon by the mainstream investing media. But now, the metals are in a different phase of the cycle since 2002, and we haven’t even gotten to the traditionally explosive third phase yet, so hang on, more sparks are sure to fly!

Another very common question we hear is “why do people even buy gold?”. True, you can’t eat it, and it doesn’t pay interest, but gold has been a valuable item since Biblical times. It’s virtually indestructible, but more importantly, it’s an asset with no debt against it. And that fact alone is the major reason people are buying gold. Intended to be a store of value, consider this over-simplified explanation: the price of gold doesn’t really change, it’s the value of the currencies that buy gold that change. For example, when the US Dollar is strong, it takes less of the strong dollars to buy an ounce of gold. When the Dollar is weak, it takes more of those weak Dollars to buy that same ounce of gold.

And weakening it is. The Federal Reserve, working under the color of the US Government, creating money out of thin air by “monetizing the debt” (buying US Treasury Bonds with nothing more than computer credits it creates at will), flooding the system with newly created US Dollars. The official government line is called “Quantitative Easing”, and you’ll read lots more about that in the future, but what it really means is printing new dollars and lowering the value of all existing dollars in the world. It helps make our US exports cheaper to other countries, but it is more insidious as it lowers the purchasing power of the dollars already in circulation. Through the “magic” of the Federal Reserve System, we have lost over 90% of the purchasing power of the US Dollar since 1913 when the Federal Reserve was founded.

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