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Comment: Not a great analysis

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Not a great analysis

First of all, the dollar has not lost 98% of it's value in comparison to its trade weighted average. It started at about 76 during the 70's, and that is the lowest it got during the worst of the downturn in 2008/09. Relatively speaking, the dollar has not lost value since its inception (expect in real value when compared to say, the price of gold). Second, gold will always hold its value relative to everything else. Since the value of gold is roughly constant, whether you buy gold at 2000, or 1600, the amount of gold you purchased will still yield tthe same purchasing power at any other point. You may have been better off with your money in FRN during a period when gold was devaluing, but that is from an investment standpoint, which carries with it all the risk as any other investment. So if you are treating gold as an investment, then you stand to lose potentially. However, if the FED gets audited and dismantled, FRNs will be worthless, while gold will still maintain its value compared to everything else, even if the price of gold goes to $1. In fact, if the FED were to be dismantled, the smart investor would put everything into gold prior to conversion, because FRN will be devalued relative to any new currency. Gold would hedge against the transition.

Further, suppose the FED were to miraculously stabilize the economy, promote growth again and save the day. We might then see a period where the price of gold is suppressed like during the 80's and 90's. This would be the worst case scenario for gold. However, as we have seen, the FED has not been able to stimulate growth, even though it has printed a lot of extra dollars. It may be interpreted that we are already seeing the beginning of a long bear market in gold as the economy recovers. However, this is not the case. Gold is currently devaluing precisely because the FED has failed to stimulate growth, and the economy is seeing deflationary pressures. The result will be that once the economy finally recovers (assuming everything else stays the same, including the FED remaining intact) inflationary pressures will necessarily push up the price of gold until the FED has a chance to respond and raise interest rates. Bottom line is Gold is not set to devalue in nominal terms until one of two things happens: 1. the economy collapses, in which case gold will collapse too (while maintaining its relative value to real goods, so no worries) or 2. The economy has fully recovered and the FED has a chance to normalize interest rates.