Epitaph for the U.S. dollar

It is now getting more and more the clear that the strength of the dollar is not what it used to be. The US dollar has existed for around 100 years but as you look at the history of fiat currency, the US dollar as a fiat currency has already existed 39 years out of an average 80 years. Looking from this angle, it would seem that the US dollar is on its exit path. There are many reasons to indicate so.

The main reason

US dollar has evolved from being an asset-based currency into the currently debt based status. A few hundred centuries ago, money was strictly asset based through gold or silver with an intrinsic worth that you had it close with you all the time; you would be a case of ‘you are what you are worth’ quite literally.

We have had famous explorers such as Marco Polo who traveled around the world using European silver and gold to trade for Asian products like silk and spices, making gold and silver the widely acceptable monetary unit then until now, where daily commerce is performed via coin money. Coin money was also used in trade before the Civil War came on. Time and again in history, gold and silver were the preferred choices of trade, especially when the California gold rush saw a great natural supply to fuel the US economy.

Federal Reserve

The US Federal Reserve came on in early 1900s to streamline and regulate the banking processes. Silver and gold coins were the major form of currency but these were heavy and hard to carry and store. Hence, the Fed came up with certificates to replace the bulk of gold and silver which could be exchanged back to the precious metals. It put up a market value of $20 for every ounce of gold with a switch to paper money as the standard currency based on the gold exchange rate.

Gold and silver coins were considered real money; meaning, you are only as rich as the amount of these precious metals in your possession. This is called asset based money or currency which limited the amount of money in circulation in relation to the amount of gold and silver available. When you have such a currency that is controlled, there is no debt.

Simplicity

When paper money was introduced and became the standard currency form, its worth was based on the amount of gold and silver the nation had; meaning, you could only print one piece of paper money if the Fed had only one piece of gold of that worth.

It was all so simple until President Nixon came on the scene and took the US off of the gold standard.

Gold and the dollar

The demand for buying gold coins is increasing with every passing day. Since this commodity is known for withstanding depreciation, more investors regard it highly as the protector of their wealth. This is not only in the case of inflation, but also against other world currencies depending on what part of the world an buyer is situated in.

Gold has a good reputation, most especially when it comes to the US dollar, which is the main trading currency of the world. This commodity has proven to be an effective hedge surrounding the fluctuation of the dollar. This aspect about the precious commodity had been formalized in recent statistics making the demand shoot upwards and the price increase.

Research has proven that over the years gold has been an effective dollar hedge comparing its price and the exchange rate of other currencies of the world. It has been found that it correlated consistently negatively with the US dollar across all rates of exchange and over time. Despite economic turbulence over some periods, gold stood firm protecting investors against the instability and the fluctuation of exchange rates.

Other studies have been conducted and have proved that this precious commodity is not only a potent hedge protection against the US dollar, but also provides the dollar with protection when it is at the verge of losing value. This makes the loss very small, which is cleared by the appreciation periods of the dollar.

With this kind of knowledge and information, most investors are becoming wise enough to invest in this commodity rather than other kinds of assets as they know that its value is going to save them during the hard economic times. Gold is not losing value by the day, on the contrary, it is becoming more and more expensive and hard to get as the demand for it is on the increase. Investors and those who know the real value of this commodity are doing everything possible to have it available as a means of making money and maintaining wealth.

Gold has proven to be the most valued commodity over the years and that is not likely to change any time soon. So the more one can manage to invest in this commodity, the better it is for that individual or institution. Those looking for ways to improve their wealth, especially investors, should consider investing in gold as it is never been worth zero.