What's up with gold? Or why is gold up?

By Kevin J. Price

I have been a huge fan of precious metals for years, but now more than ever as gold hits new records. Gold is now consistently hitting above $1,300, which is an amount that only the most alarmists declared as a possibility a few years ago. The reasons people are moving quickly to precious metals are numerous and simple -- massive bailouts of 2008 and 2009 (and continuing today) not only changed the way our nation spent money, but the way (in terms of quantity) they print it also. The enormous amount of spending by our government -- at a pace that increases the deficit annually at a rate higher than our total debt a few decades ago -- has been frightening to observe.

As a result of such spending, government is mass producing money to pay its bills. The government prefers this approach to solving its problems because, since the government prints the money and release it first, it enjoys this "funny money" at its highest value. It is only after it circulates through the economy that it loses its spending power and reduces the value of all other dollars in the market. Inflation is simply defined as "too much money, chasing too few goods." High prices is only one of the many symptoms of such a policy. In addition, inflation plays on the ignorance of a population who has no idea that these increases in prices are caused by these devalued dollars. Most voters will blame businesses for their "greed" and price raising, not the politicians who make such a phenomenon necessary. Simply put, every new dollar pumped into the economy takes away the value of all the dollars in the market, unless there is a comparable increase in productivity. Inflation is a monetary tax -- one that takes away the value of your money, instead of actually taking your dollars.

In one day in 2009, the United States took a chapter out of Zimbabwe's playbook by pumping $1.2 trillion into the money supply in an attempt to pay off its bills. Many Americans have (rightly) been alarmed by the more than $1.5 trillion we have seen in bailouts. According to the Washington Post, these inflationary efforts could have far reaching implications, noting that "combined with the billions already deployed by the Fed, the new money dwarfs even the biggest government bailouts of financial companies."

Historically, this type of monetary policy leads to the kind of inflation that we have seen in history books, where it is cheaper to use money for wallpaper than to buy it or it requiring a barrel of money to buy a loaf of bread. I have seen the images of street cleaners sweeping dollars in the street. Printing worthless money will not make our problems go away, but make issues we have never imagined. If cheap money made countries rich, all we would need to do is send printing presses, paper, and ink to Third World nations.

This tax on the value of money is one of the few that can be fought by taking action. Individuals can actually reduce their "monetary tax" burden with every precious metal purchase they make. Gold, silver, and other precious metals are at an all time high because of the inflation we have suffered over the last two years (again, too much money chasing too few goods). It is only expected to get worse. Precious metals are a tool for shoring up the value of money. It is an insurance policy to your wealth. As the money supply is inflated, those with gold or other precious metals will see their wealth enjoy a greater level of protection and their "monetary tax" burden greatly reduced. Those who do not move towards precious metals either do not fully understand our current economic crisis or are as apathetic as the millions of Americans who still sit on the sidelines rather than participate in the massive political wars we are engaged in today. People need to make a difference in the national economy through elections and preserve their personal wealth through precious metals.

Today our dollars are backed by the "good faith and credit of the United States." Most people laugh when they hear such until they think about their own money. Since 1971, the relationship between gold and money has been severed; fortunately we still have the right to shore up the value of that wealth through the purchase of precious metals.

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Kevin Price
Host, Price of Business, M-F at 11 am on CBS Radio News
Frequently found on Strategy Room at FoxNews.com
Syndicated columnist whose articles appear on a variety of media outlets.
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