The media, and even the network TV shows, have started reporting the price of gold regularly. For almost twenty years, between 1980 and 2000, the price of gold was almost never mentioned. There was almost no interest, and the price was either declining or stagnant.

Since 2001 however, interest in gold has soared along with its price. With the price now over $1000 an ounce, a lot more people are becoming interested in investing in gold and an economic indicator. A lot can be learned by understanding what the rising dollar price of gold indicates.

The rise in bullion prices from under $300 per ounce in 2001 to over $1000 today has drawn investors and speculators into the precious metals market. Though many already have made obscene gains, buying gold per se should not be touted as a great investment. Considering that gold earns no interest and its quality never changes. It’s static, and does not increase as sound investments should.

It’s more precise to say that one might invest in a gold or silver mining company, where management, labor costs, and the nature of new discoveries all play an important role in determining the quality of the investment and the profits made.

Buying gold and holding it is somewhat similar to converting one’s savings into one hundred dollar bills and hiding them under the mattress, althoughtyet not exactly the same. Both gold and dollars are considered money, and holding money does not count as an investment. There’s a big descrepancy between the two however, because by holding paper money one always loses purchasing power. The purchasing power of commodity money, i.e. gold, however, goes up if the government devalues the circulating fiat money.


Holding gold is protection or insurance against government’s tendency to debase its currency. The purchasing power of gold increases not because it’s a so-called good investment; it increases in value only because the paper currency decreases in value. In our present situation, that means the U.S. dollar is lossing value against gold.

One of the characteristics of gold-backed money (one that came about naturally in the marketplace) is that it must serve as a store of value. Gold and silver meet that test, while, but paper money does not. Because of this large difference, the incentive and wisdom of holding emergency funds in the form of gold becomes a no-brainer when the official currency is being devalued. It’s more attractive than trying to save wealth in the form of a fiat currency, even when getting some small amount of interest. The lack of earned interest on gold is not a problem once people figure out the purchasing power of their currency is declining quicker than the interest rates they might earn. The purchasing power of gold can rise even faster than increases in the cost of living.