Gold is Real Money. - Surviving the global financial collapse.

Savvy investors, who have come to the realization that they need to strengthen their investment portfolios, are once again buying gold. Even stocks and bonds, when inflation is on the rise, can't beat the performance of gold.

In a global context, money supply impacts the performance of gold. There is a positive relationship between money supply and gold, only if accompanied by economic growth.

But when the economy becomes stagnant, when excess money enters the system along with the pressure of inflation, the savvy investor increases hard assets, including gold.

Worried about the devaluation of the dollar? People in history, as with savvy investors today, make gold the asset of choice when faith in paper currency is lost.
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Every other asset in one's portfolio could have bed debt behind it and when defaulted or inflated, will mean a loss. That's why you need gold.

When the economy is down, investors turn to gold as a haven. Staying in gold makes sense because it retains its value much better than currency-backed assets. Gold, like any asset, is subject to supply and demand pressures which cause fluctuation in price.

The price of gold in 2008 moved between $720 - $980 an ounce as a result of shattered investor confidence. Further into the recession, gold prices soared as investors sought a safe place to put the cash they pulled out of the market.

In the last 10 years, gold has been on a meteoric rise. On May 21, 2010, gold was $1,193 per troy ounce. That's over 300% since the start of 2000. Compare that with the S&P 500 which was down 24% during that same 10 year period. Analysts, money managers and investors are nervous about the global economy resulting in gold being at a near all-time high.

The US was the last to default on the gold standard in the 1930's, destroying the value of savings which drove panicked people to buy gold. Europeans are following suit today. India, China and other developing nations are purchasing huge quantities of gold. The reason? To diversify against the US dollar.

Economists worldwide believe we are headed towards higher inflation. David Levenstein, a precious-metals analyst at Lakeshore Trading in Johannesburg, South Africa, predicts that "when we see inflation kick in as a consequence of the huge stimulus programs and massive escalating deficits, gold will soar even higher."

Mistakes have to be corrected, one way or another. Bad investments, bad loans, bail-outs, defaults and inflation are all going to take time to reverse or dispel. Currently, global efforts aren't working. Add bad private debt with the bad public sector debt and something has to stop. Look at Greece as it warns the rest of Europe. When lending stops, the economy and the markets fall.

When three factors coincide, negative interest rates, deficit spending and an increase in money supply, that's when the performance of gold shines exceptionally bright.