Gold is the safest hedge against worldwide currency inflation

The savvy US Investor is faced with a tough but clear problem.

He or She realizes the US Dollar is chronically ill. He or She realizes the need to protect their assets to maintain purchasing power.

The unsavvy US investor believes the rubbish inflation numbers put out by the government. He or she takes no action to protect themselves until it’s too late and it’s obvious that the cost of living is exploding. Unfortunately, and at that time, they will have no means of generating an income sufficient to keep pace with inflation!

But for the savvy US investor the answer is (supposedly) clear: diversify into foreign currencies such as the Euro, Swiss franc, Pound, Australian dollar, Canadian dollar, or gold.

For the non-US investor the problem is a little more complicated. What the foreign investor sees is a booming economy, a strong currency (relative to the world’s reserve currency) and rising asset prices. No need to protect your purchasing power here right? Wrong!

As can be seen from the charts below, strong foreign currencies are not keeping pace with gold:

Chart 2: Gold in safe haven Swiss Francs making new highs

Chart 3: Gold in Japanese Yen speaks for itself

Chart 4: Gold is even in an uptrend against Super Strong Canadian dollars

The reason for the under performance in almost every paper currency is competitive currency devaluations.

Whilst the world remains US-centric and everyone wants to supply America with their goods and services, foreign countries would prefer keeping their currencies as low as possible in order to capture a competitive trading edge.

In an effort to cheapen their currency they print even more than the US Federal reserve does. And the Fed is printing 13% more currency every year! Supply and Demand. Today nobody wants a strong currency and hence all paper money is devaluing against gold – whose supply cannot be manipulated.

There is certainly an element of real global growth out there but there is also a strong dollop of inflation in the overheated Global economy. Unfortunately for the savvy US investors who are invested in foreign currencies, it’s a case of jumping out of the fire into the frying pan.

Gold should be your currency of choice: gold bullion as well as gold stocks for those who can tolerate the volatility.

More commentary and stock picks follow for subscribers…

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Greg Silberman CA(SA), CFA
greg@goldandoilstocks.com

I am an investor and newsletter writer specializing in Junior Mining and Energy Stocks.