Recent economic earthquakes have forced governments, institutions, and investors to rethink their investment strategies. In the United States, for example, the economic recession and weakening of the dollar has caused investors to flee from equity assets.
Due to its historical performance versus the dollar, as well as its recent increase in value, gold has simply become the most lucrative investment for those seeking a hedge against uncertainty in today’s turbulent economic climate.
Since the dawn of the 21st century, the sheer amount of paper money in circulation by the United States government has skyrocketed upward at an alarming rate.
The following graph illustrates this point. In particular, it draws attention to the government’s immediate answer to economic recession overtook: Simply print more paper money.
Yet as history has shown time and again, uncontrolled issuance of paper money leads to rampant inflation and the softening of the purchasing power of paper money.
Economists historically preached about the inverse relationship between gold and the dollar. It’s quite simple: as one increases in value, the other decreases. Since the dollar serves as the foundation of equity-based assets such as stocks and bonds, a decline in the value of such investment vehicles is accompanied by a resulting increase in the value of gold.
This inverse relationship is illustrated best by looking at the relative performance of gold versus the Dow Jones Industrial Average not only since the turn of the 21st century but also since the onset of the recession in 2008.