US Dollar or Gold?

by Wes Bridel on August 7, 2009

in Stewardship

Yesterday, we described, in simple terms, how today’s administration is devaluing your money.  In real life though, it’s a bit more complicated than that.  A dollar is worth whatever the world is willing to pay for it, just like any other product.  And for almost a century now, the world has looked upon the US Dollar as its storage place for safe money.  The entire world economy is built upon this premise.  Commodities and international exchange are for the most part conducted through the Dollar system.  It’s not an easy thing to replace.

So, if the US were a small country and acting in the way that it is with its currency and government, the US Dollar would already be worth far less than it is today.  But because the US is in the center of the whole system, it remains a fairly strong currency in relation to other countries’ currencies (which by the way are mostly all doing their best to devalue their currencies which makes exporting goods to American buyers easier).  Also, because the entire lives of those making individual decisions have trained people and nations worldwide to think of the US as a safe place to hold their money, this is a deeply ingrained habit.  But signs are showing that this is changing.  The up and coming world dominating economies of Brazil, Russia, India and China (BRIC) have begun speaking out against the wisdom of the US being the world’s reserve currency.  China has begun buying up commodities instead of US Dollars with some of its trade reserves.

So which is it, are we doomed to massive inflation which will destroy the value of every dollar that you hold.  Or will the status quo go on because the Dollar is such an intrinsic part of the system?  Or will we even see  a little Deflation due to the huge slow down in the world economy?  There is no certain answer.

We believe that a day is coming when the value of the dollar will be drastically reduced…but we think this is a little further off than many are expecting.  How long?  Good question, we don’t have a real strong opinion here.  We’ll speak more about inflation in the future, but hopefully this gives enough of a basis of understanding the allure of holding the metal.

If indeed, dollars are worth less, how much less will they be worth?  Again, it’s hard to say.  When inflation happens, everything that you buy costs more.  Every commodity costs more and every import costs more because people in the countries making a good require more of your Dollars to sell you something.  We experienced fairly severe (by US standards) inflation when Jimmy Carter was president which lasted into the beginning years of Ronald Reagan’s presidency.  In those years, inflation was double digit, so the value of your money decreased at that same rate.  If this were to happen, and you owned gold, your gold would increase in value based upon the amount of dollars that it buys.

Let’s look at an End Times scenario and paint a gloomier picture.  Imagine you’re in Russia a little over a decade ago at the time their currency was being greatly devalued.  A woman was going to the store to buy some milk.  She had to carry the piles of cash in her wheelbarrow, because the Rubles (Russia’s currency) had become so worthless, that it took piles to buy anything.  When she turned away for a moment, a thief came up and stole her wheel barrow, leaving the pile of money.  The wheel barrow was the only thing of value!  Russia eventually recovered from this, but all the wealth changed hands, and people starved in the transition!

I wasn’t in Russia at this time, but I’m sure that had this woman owned gold, she could have named her terms when she was trying to buy things.  Could things get this bad here?  I don’t know.  It’s hard to imagine here, but on the other hand, the world is being shaken in ways that it never has been.  Our government is being absolutely irresponsible.  It could all fall apart.  And if it did, gold would be the best thing that you own for acquiring things of value.  This is the case for holding physical gold some place safe where only you know about it.

If everything gets better economically and fears subside, the money that you store in gold could lose value for a time.  As said above, since we spend money in dollars, it is a speculation.  If you look at the value of gold over time, it remains amazingly consistent.  It buys roughly the same amount of goods that it bought 2000 years ago.  But in the short term, it can double or fall in half in value.  That is the risk with holding it, so realize if you choose to do so, that you are forgoing any yield and taking the risk of short term loss by doing so.

Of course, it’s always important to remember…“The law from your mouth is more precious to me than thousands of pieces of silver and gold.” (Psalm 119:72)  Perhaps because we inherently know that gold is physical worldly mammon, it pulls at us more than any other asset.  As with every other asset, it must be used to help you serve God’s purposes, not to be something hoarded.

What do you think?  Should you buy gold right now?

This is _Part 7_ in the series titled The Trunk.  To continue with this series, click on pt 8.  To use this as a growth tool, please read Pt 1, Pt 2, Pt 3, Pt 4, Pt 5 and Pt 6.

Photo credit: filipinoj

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