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
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
Yet, there's evidence the gold rush is for real. In a bullish sign, the sleepy Central Fund of Canada
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Fool contributor Chris Mallon believes the gold bull is for real. He owns shares in Central Fund of Canada through his private investment partnership.