Why Gold?
Here's a little snippet from an article yesterday over at Bloomberg:

The cost of a Thanksgiving dinner in the U.S. will jump 13 percent this year, the biggest gain in two decades, as prices rose for everything from turkey to green peas to milk, the American Farm Bureau Federation said.

A meal for 10 people on the holiday, which falls on Nov. 24 this year, will rise to $49.20 from $43.47 last year, the biggest increase since 1990, based on foods traditionally served including stuffing and pumpkin pie, the farm group said today in a release. Turkey was the most expensive and had the biggest gain, with a 16-pound bird up 22 percent at $21.57.

As every shopper knows, and this story illustrates, the commodities sector is experiencing inflation at run-away levels. But what we really need to find out is "why." Are food and other commodity prices rising because of a supply shortage? Or, are they rising simply because the value of the currency is falling? The answer to these two questions are critical when it comes to proper analysis of the current inflationary trends and a proper investment response to it.

Well, we don't have to read much further in the article before we get our answer:

At a time when global food prices tracked by the United Nations fell 9.1 percent from a record in February, U.S. consumers are paying record prices, including hams, ground beef, bread, flour and cheese.

So, the answer to our first question is that there is not necessarily a shortage of supply driving up food prices here in the US. In fact, food prices have been on the decline worldwide due to recent over-supply. Therefore, we are left by default with our answer to question number two: Food prices IN THE US are rising because the currency (the DOLLAR) that American's pay for their food is falling in value.

Now, armed with this information we can make some informed decisions about investing. Since these rising commodities prices are monetarily based, one should invest in commodities to preserve one's purchasing power. Of course, as everyone knows, gold is the ultimate commodity as it is the antithesis to devaluing paper money. When paper money falls in value, gold increases proportionately, as do other relatively fixed-supply commodities such as food/oil/materials, etc. Said another way, when governments create an oversupply of their currency by excess monetary creation, everything that is priced in that currency will cost more IN TERMS OF THAT CURRENCY ONLY. That is the key point to understand. As stated above, food prices are rising at present only in the dollar currency but not in other currencies. Therefore, this inflation we are seeing is monetarily based, not supply based, which is very bullish for the dollar-price of gold.

Simply knowing that prices are rising is not enough to base investment decisions on. One must know WHY prices are rising, and then, armed with this information, position one's investment portfolio appropriately. In an environment of monetarily-induced inflation, like we are presently experiencing in the US, hard assets such as gold and silver offer the investor the best chance of preserving their wealth from further devaluation.