Three Reasons To Still Own Gold (or Finally Buy Some)By Steven P. Orlowski, StreetAuthority

I recently watched the classic man-eating fish movie Jaws and the latest action in the precious metals space reminded me of the tagline for the film, "Just when you thought it was safe to go back into the water..."

Is it safe to swim in the water? Or is Jaws still lurking out there, the physical embodiment of a financial world gone lethal? Can gold still protect us?

Gold has had a magnificent run during the past 10 years, doubling in value since 2008 alone. Gold has set and broke several new price records, most recently reaching $1,500 per ounce on the Comex division of the New York Mercantile Exchange in Tuesday's trading.

The most commonly-traded gold exchange-traded fund, the SPDR Gold Trust ETF (GLD), followed suit, closing just shy of $146.00 a share, an all-time high. Mirroring these moves was gold's less valuable (and possibly more appealing sibling) silver, which has been hitting 31-year highs almost daily.

Gold "mania" is seemingly at full strength. But questions remain. Is profit taking the next move? What if you are among the majority of investors who have yet to dip a toe into the water? Is it safe to dive in?

Let's look at three fundamentals regarding gold, along with the rational outlook that should correspond with these facts:

1. Inflation

Naturally, I'm not referring to core inflation, also known as the government's consumer price index. The CPI is like the calm surface water that hides the beast beneath.

Headline inflation, which is the measure of the total inflation in the economy, is running very hot. There is increased demand for resources thanks to growing economies worldwide and corresponding shortages developing in food, energy and elsewhere. Gold is benefiting from inflation and there seems to be little reason to expect it to slow down.

Money creation in the United States has excess dollars chasing these aforementioned goods. Some think this is a good thing. Some will argue that the Federal Reserve will eventually sop up the extra liquidity. But the reality is they never really will. The dollar has lost 95% of its purchasing power since 1913, the birth-year of the Fed. I see no circumstances under which the dollar will not continue to fall long-term. It will bounce up now and then, but if nothing else, the past 40 years have cemented the dollar's future -- and the trajectory is to the ocean floor.

2. Demand

From people, institutions and governments -- gold is wildly in demand like the cheesy Jaws merchandise sold during the record run of the movie in the 1970s.
Faith in virtually all currencies has been shaken, if not destroyed, and will probably never be restored.

The dollar's reserve currency status is threatened. More than threatened, it is visibly on the way out. What was once mere speculation has evolved into blatant measures to see it replaced. It will happen, but it will also take years. When we see countries like Venezuela and China trading with each other without using dollars (or any other currency) the evidence is irrefutable.

We also see many countries increasing their gold holdings (China's has increased from 600 metric tons to 1,054.1 metric tons since 2003), the logical defensive strategy when saddled with hundreds of billions in depreciating dollar reserves: stockpile commodities and natural resources. I give you dollars and you give me gold, oil, or steel -- that's a fine exchange for me.

3. Government spending

The U.S. government is losing its credibility. Speculation that the United States will have its credit rating lowered was fueled this week after ratings agency Standard & Poor's lowered its outlook on U.S. debt from "stable" to "negative".

The United States is the largest debtor nation in the world, nee, in all of human history. Once upon a time, it was the largest creditor nation in the world. In the 1980s, it loaned other countries money, money it really had. Now it borrows massive amounts to service its debt. The nation's well documented entitlement obligations are helping to catapult its annual budget to fantastical extremes.

Action to Take: Keep your gold or buy some.

The facts argue that gold should continue to rise; and not just in dollar terms. Many of these observations can be applied to other countries and currencies as well. I'd love to be optimistic regarding the United States' financial future, but right now things look grim. Jaws is still out there.

P.S.: We found an obscure mining company that tossed back 19% in dividends last year (plus another 34% in capital gains). If you think that's impressive, wait until you see this video...

Disclosure: Neither nor StreetAuthority, LLC hold positions in any securities mentioned in this article.

Steven P. Orlowski is a certified financial planner and a veteran investment adviser. He has helped retire hundreds of people while educating his clients on the methods of retirement income planning, estate planning and investment planning. Steven has expert knowledge of the financial markets -- notably commodities, precious metals and emerging markets -- as well as the domestic economy.

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Forget he inflation numbers you are hearing from the Fed Govt. If you want to see the real inflation numbers just look at the Commodities Index Chart.

I agree that gold is worthless metal, but so is the 2.4 trillion in new debt money the Fed govt will be printing up.

The Gold Bubble is not going to burst as long as the Fed Govt keeps printing up new money. They just agreed to print up 2.4 trillion new dollars by raising the debt ceiling.

August 03 2011 at 10:55 AM Report abuse rate up rate down Reply

The Gold Bubble is not going to burst as long as the Fed Govt keeps printing up new money. They just agreed to print up 2.4 trillion new dollars by raising the debt ceiling.

August 03 2011 at 10:49 AM Report abuse rate up rate down Reply

Raising the debt ceiling means printing more money (electronically). After the debt ceiling is raised the Department of Treasury will print up some new government notes, bonds and bills and sell them to the Federal Reserve. The Federal Reserve will then create some new money and give it to the US Treasury. All this does is dilute the existing currency and weaken the value of the dollar. Businessmen pay close attention to the actions of the government in regard to creating new money. The second the debt ceiling is raised, they raise prices to compensate for the diluted currency. Raising the debt ceiling will accomplish nothing in the long term except put government deeper into a debt they can not pay back.

August 03 2011 at 10:47 AM Report abuse rate up rate down Reply

We at GolDAMN Nut Sachs, and Exxon/Mobil are proud to be reducing global warming one bankrupt driver at a time

June 03 2011 at 8:36 AM Report abuse rate up rate down Reply

Major Fraud Alert

The entire Federal Banking System under FirstGov has been "Consumed" and "Levied" by way of a Maryland State Circuit/District Court Ruled “Appropriation and Garnishment” of all Future Earnings prior to and after 2004 against Bank Of America by way of the F.D.I.C. Regulations Prohibiting failing Banks from Merging with other failing Banks between the Dates of 08/04/08 and 10/09/09.

Bank of America violated the 21st Century Act: Final Amendments to Regulation CC Section:

seeking reimbursement of Credit, Loan, and Finance Balances as a "Bank Entity" and not a "Nonbank Consumer" as specified on Pages 85 and 86.

The person they sued through a LLC. Debt Collection Company and Law Firm was the "World Fortune Owner" who "Counterclaimed" and won.

Now all Contracts of any Corporations (Including Employment) under the "Controlling Interest" of any Investment Bank Worldwide are "Null and Void", and are also under the stipulated Rules and Regulations of an "Closely-held S Corporation rendering all Employed under Legal Actions against “Domination”, and also means that "No Corporation can hold Shares" officially making every Stock Exchange on the Planet a "Ponzi Scheme" by default.

Businesses owned by the States (Public Corporations) are being sold Stock Shares by Corporations also under the Federal Banking System in this Worldwide "Ponzi Scheme". The World Fortune Company Merrick Inc. Sweden is dissolving Millions and Billions of Dollars from "All Levels of Government"in the U.S. of Financing based upon Years of "negligent inaction" involving this case.

The Federal Government has already been forced to discontinue supplying the Financing States use to pay their debts, Persons in Government Offices may want to begin to take their jobs more seriously, these are different times from 10 Years ago and you will not be accepted civil servants here just because you say you are here to do the right thing.

May 29 2011 at 12:10 AM Report abuse rate up rate down Reply

Looks like that gold bubble isn't going to burst after all. If your financial planner laughs at at investing in gold, fire them promptly.

May 23 2011 at 1:38 PM Report abuse rate up rate down Reply

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May 22 2011 at 11:36 PM Report abuse rate up rate down Reply

I would add a fourth reason for holding more than a couple of percent gold: stupidity ... or at least economic and financial ignorance.

May 18 2011 at 9:20 AM Report abuse rate up rate down Reply

I think the best way to know whether or not it's a good time to jump in the water, as it were, is to see the live chart:

May 02 2011 at 6:19 AM Report abuse rate up rate down Reply

The world's largest publicly traded company on Thursday reported net income of $10.65 billion, or $2.14 per share, in the first three months of the year. That compares with $6.3 billion, or 1.33 per share a year ago. Revenue increased 26 percent to $114 billion.

The results surpassed Wall Street estimates of $2.04 per share on sales of $112.6 billion, according to FactSet.

The quarter was Exxon's best since it earned a record $14.83 billion in 2008's third quarter. It comes at a time when some drivers are paying $4 or more for gas and President Obama is threatening the oil industry's multibillion-dollar tax subsidies.

Earnings grew across the company's business segments. Income from its exploration and production business gained 49 percent to $8.7 billion while the company's downstream business, which includes refineries, posted a huge 30-fold jump to more than $1.1 billion.

Anticipating a strong reaction to the results from drivers and politicians, Exxon said on a company blog Wednesday that it has little control over the price of oil, which has risen to near $113 per barrel. The company also noted that less than 3 cents of every dollar it earns comes from the sale of gasoline and diesel fuel.

Now, are you still going to blame the Middle East?


April 29 2011 at 8:31 AM Report abuse rate up rate down Reply