Friday, November 06, 2009

Just Paper

clipped from

Now here's a paradox, or at least a seeming paradox. The longer the Fed keeps interest rates at zero, the more worthless paper money becomes. That creates the impression that gold is more valuable -- in fact, this week it hit all-time highs at almost $1,100 per ounce as the Fed announced the indefinite continuation of its zero-rate policy. But that's not gold becoming more valuable. That's the paper money in which the price of gold is denominated becoming less valuable.

In other words, gold is the constant. Its value doesn't change. Its dollar price changes, but not its value. So when investors come to me and ask me how they can hedge against the falling value of the dollar, I always tell them to buy gold.

You can't escape the falling dollar by buying other currencies like the euro or the yen. They're just paper, too. Lately they've looked strong versus the dollar. But in the end, they're just paper.