Wednesday, May 30, 2012

Problems With Gold or Trust In the U.S.?

This will be a short post today.  I have been hearing much to do about why gold is not acting as a safe haven at this point in time with all of the problems going on in the Eurozone.  I am not an economist but I can apply some good old fashioned common sense as to why gold is not behaving as it has in past times of crisis.

Investors need to remember how the U.S. dollar was perceived just a few short years ago.  Everyone was convinced, rightly or wrongly, that our federal policies were destroying the value of the U.S. dollar.  As the printing presses were cranked up, and billions of dollars were pushed into our banking system, the attitude toward the future value of the U.S. dollar sunk to an all-time low. 

The problem’s in the Eurozone, and thus the Euro, in my opinion, is the very reason why gold is not the asset of choice as a safe haven at this time.  America has found its footing, and the collapse in the value of the Euro versus the U.S. dollar has brought people back to trusting the greenback.  How bad had the dollars reputation became?  It was just a few short years ago that supermodel Gisele Bundchen declared she wanted to be paid in Euros because her lack of faith in the U.S. dollar.  How has that worked out for you Gisele?

In the end, some economists may be correct that our Fed’s policies will have a negative impact on the U.S. dollar and eventually lead to massive inflation.  For now though, the U.S. is looking pretty good when compared to options in the European Union, and therefore has re-established the U.S. dollar as somewhat of a safe haven.

Thank you and good luck everyone!

Jon R. Orcutt, founder of Allocation For Life, is an asset allocation strategist and author of “Master the Markets with Mutual Funds: A Common Sense Guide To Investing Success”