Gold: An Excellent Diversification

Gold is priced in dollars. Inflation means the dollar is worth less in terms of purchasing power. That means it takes more dollars to buy gold, so the dollar price of gold goes up. What you may lose in the rest of your portfolio in terms of dollar purchasing power is made up in part or all from the profits you make on the higher dollar price of gold. James Rickards says owning gold will protect you from the ravages of inflation. You’ll have your inflation protection in place 24/7 and won’t be caught off-guard.

- James Rickards

Despite the Wall Street happy talk about the Federal Reserve winning the battle against inflation, that battle has not been won. Headline CPI was 3.4 per cent in December. That compares to 3.1% in November and 3.0% last June. In other words, inflation is not gone and may even be on the rise with higher oil prices lately due to geopolitical concerns. The Fed will not raise rates, but they will not be quick to cut them given continued inflation.

Inflation has a way of sneaking up on investors in small increments and can do a lot of damage before investors see it for what it is. Sure, 3.4 per cent inflation is a lot better than 9 per cent inflation. But a 3.4 per cent inflation rate cuts the value of a dollar in half in 21 years and half again in another 21 years. That’s a 75 per cent dollar devaluation in just 42 years or the course of a typical career from age 23 to age 65. That’s one of the main reasons I recommend gold. Gold is priced in dollars. Inflation means the dollar is worth less in terms of purchasing power. That means it takes more dollars to buy gold, so the dollar price of gold goes up.

What you may lose in the rest of your portfolio in terms of dollar purchasing power is made up in part or all from the profits you make on the higher dollar price of gold. Owning gold will protect you from the ravages of inflation. You’ll have your inflation protection in place 24/7 and won’t be caught off-guard.

Get Diversified!