Gold: So Simple Yet So Misunderstood

How high can gold go? I'm asked that question quite often these days and the answer I give is in the form of a question; "How low will the dollar go?"

The truth about gold is that it isn't really increasing in value. In fact, its value has stayed pretty much the same throughout our history. That is why it is so valuable to begin with. Exclusive of relatively small and incremental changes in gold's intrinsic value due to the inflation rate of mine supply vs. the inflation rate of a basket of goods, the purchasing power is steady. It is only the currency's value that changes.

So while gold is going up in price its value remains relatively constant. What is really happening is that the dollar is losing its purchasing power and it takes more of them to buy an ounce of gold. Therefore, as long as our government devalues the currency the dollar price of gold will rise. And investors should not marvel at how expensive gold is becoming, rather they should fret over how little the dollar is able to purchase.