Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Gold: the Anti-Dollar

If you've ever listened to die-hard gold investors talk, you've heard them say gold is money. That was an accurate statement until the U.S. dollar finally went off the gold standard about 30 years ago. Since then, however, gold has been the anti-money.

Specifically, gold has been the anti-dollar, rising when the dollar falls and falling when the dollar rises, serving primarily as an inflation hedge. In recent years, record-low interest rates, record-high trade deficits, and the Federal Reserve's willingness to print money have all spurred inflation fears. Recent producer and consumer price indices confirm those fears.

The U.S. dollar began falling against other world currencies in mid-2002. Not coincidentally, gold began rising steadily in dollar terms at around the same time. As pointed out in a recent article, unhedged gold mining stocks like Newmont Mining (NYSE: NEM  ) , Gold Fields (NYSE: GFI  ) , and Freeport-McMoRan (NYSE: FCX  ) have benefited from rising gold prices, showing triple-digit gains over the last three years.

Yet gold, historically, is a poor investment. After gold's spectacular performance in the 1970s, its price collapsed and remained in a bear market for almost 20 years. During that time, the S&P 500 gained 11%, annually. Going back even further, in 1933 an ounce of gold would have cost you the same $35 it did in 1970. The Dow Industrial Average could be had for about the same price. Which of those made the better investment?

Gold hasn't been in a bull market for the last three years as much as the dollar has been in a bear market. The specter of rising interest rates has already sparked a dollar rally, and hence a sell-off in gold. The Gold Bugs Index (AMEX: HUI  ) of unhedged miners is off 11% this month, and a strong dollar rally this year could take gold stocks much lower.

Yet, there's evidence the gold rush is for real. In a bullish sign, the sleepy Central Fund of Canada (AMEX: CEF  ) , a gold- and silver-bullion vault, has tripled its share capital over the last few years. These funds go to buy more bullion and indicate confidence in the gold bull's staying power. With inflation on the horizon, a pricey stock market, and global trade rebalancing long overdue, the anti-money may no longer be a poor place for your money.

What are your thoughts on the markets and our economy? Share them with other Fools on our Economy and Markets discussion board.

Fool contributorChris Mallonbelieves the gold bull is for real. He owns shares in Central Fund of Canada through his private investment partnership.

Read/Post Comments (0) | Recommend This Article (1)

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 507159, ~/Articles/ArticleHandler.aspx, 10/25/2016 8:28:47 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,169.27 -53.76 -0.30%
S&P 500 2,143.16 -8.17 -0.38%
NASD 5,283.40 -26.43 -0.50%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/25/2016 4:00 PM
CEF $13.40 Up +0.08 +0.60%
Central Fund of Ca… CAPS Rating: ***
FCX $10.55 Up +0.37 +3.63%
Freeport-McMoRan C… CAPS Rating: ****
GFI $4.22 Up +0.15 +3.69%
Gold Fields CAPS Rating: **
NEM $36.59 Up +0.75 +2.09%
Newmont Mining CAPS Rating: ***