Gold is an Inflation Hedge--An indepth view of investing in gold stocks

The current world wide economic crisis is quite naturally and necessarily being met by vigorous government stimulus packages like that initiated in the United States by President Barack Obama. Faltering economies are being pumped up by the investment of billions of dollars on infrastructure, research and development, and other government programs. Without such investment the crisis could become catastrophically deeper and longer.

Of course stimulus funds must necessarily be borrowed in the form a rising national debt. When the economy improves, at it will eventually, those debts must be paid off. Some portion can be retired on the strength of rising economic activity. But much will eventually be paid off by expanding the money supply—printing money. The inevitable result is future inflation.

Gold is the traditional hedge against inflation. But owning gold as a commodity is not necessarily the best or most efficient way to use its value as a hedge. Investing in gold mining stocks is another way.

An investor looking ahead and thinking counter-cyclically might choose to add gold stocks to his or her portfolio now in order to reap the benefits later.

Back in the late 1980’s I spent more than a year researching and writing North American Gold Stocks: New Investment Opportunities and Strategies in U.S. and Canadian Gold Mining Stocks. I am proud to say that after all of these years most experts in the field still regard it as the best book on the subject.

Visit the web page of Oaktree Captial Group to peruse the chapter Gold: an Inflation Hedge? from the book.

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