Gold and Economic Freedom

A friend recently reminded me of an article written by former Federal Reserve Chairman Alan Greenspan in 1966 titled "Gold and Economic Freedom" It makes the case for gold as a store of value and a protector of purchasing power.

Only a few years after Greenspan wrote this piece, the U.S. abolished the gold standard that had preserved the convertability of the U.S. dollar into gold at $35/ounce. Over the ensuing years, salaries, property values, stocks and the price of many commodities have advanced dramatically, but the purchasing power of the dollar has eroded greatly. Here are several charts that illustrate how much less gold and oil a dollar buys today than it did in 1969.

At present, the economy appears to be working through a period of near deflation, but the expansion of the monetary base that is being engineered by the U.S. Federal Reserve (see chart), and other central banks, is likely to lead to inflation. Should this occur, holdings with cash flows that are leveraged to inflation, be they commodities, natural resources, real estate, or timber should protect purchasing power better than cash.