Thursday, August 21, 2008

Gold - Better Cash Than The Dollar?

This week, Amateur Economics wrote a blog entry this week about our favorite topic – Gold! The blog compares the continual decline of the dollar in conjunction with the cost of gold.

According to AE, the dollar has lost 81% of value since 1971. Measured against gold, the dollar has lost 95% of value.

Until August 15, 1971, a US dollar represented backing of 1/35 ounce of gold. By 1973, following the Nixon administration, the dollar’s value had sunk to 1/64 of an ounce of gold.

The blog asks the question in today’s shaky economic situation, “Can gold lose dollar value even as the dollar itself loses purchasing poser?”. AE says yes, and that we have the Fed to thank for this – due to the stock market bubble bursting followed by the collapse of the real estate market. As a result of all of this economic meltdown, gold and the dollar could “simultaneously weaken”.

Consumers have flooded to gold as economic uncertainty has increased. The last peak of gold was on March 17 for $1,011 an ounce. The ‘lows’ recently have reached about $835 and could possibly go lower, however economists believe that we have not seen the peak of gold as measured against its 1981 price adjusted for inflation.

AE goes on to describe that the two factors that help the price of gold are (1) inflation and (2) war. To read the entire article, click here.

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