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Dow Jones Loses Global Purchasing Power Due to Dollar Devaluation

Commodities / Gold & Silver Dec 05, 2007 - 12:06 AM GMT

By: Ned_W_Schmidt

Commodities The business media keeps telling investors to remain faithful. Paper equities, despite their continuing under performance, are they claim the place to put your wealth. A broken clock is right twice a day, and that seems to beat the record of most of gurus appearing in the business media. We are repeatedly told that the market is just shy of a high, making a high, or consolidating gains. What is important though is not the level of market or the price of an investment.


What is important is what it will buy. In the chart, using blue circles, is plotted the DJIA for this year. Yes, a gain is being recorded. However, more telling is the red line which is the DJIA adjusted for the loss of value of the dollar. It shows what the DJIA will buy in the big world. When adjusted for the loss of purchasing power by the dollar, the DJIA is no higher than at the beginning of the year. The monetary illusion of rising nominal dollars masks the loss of value in what the DJIA will buy in world markets.

Gold has clearly done far better at maintaining purchasing power. No doubt all have been excited by Gold's rise to over $800. Now, Gold is in process of a much needed correction. Such events are necessary to develop the fuel for the next rally. Investors now have important Gold questions. How far will correction go? Will it break $700? When will an over sold condition develop to entice investors to buy? When should buyers step up?

With U.S. dollar on way out as principal global money, owning Gold in more important than ever. The long-term case for Gold has been confirmed by the response of global financial markets to structural ineptness at the Federal Reserve. No longer are forecasts for $1,400 ridiculed. All that remains is selecting the best times to buy Gold.

 

By Ned W Schmidt CFA, CEBS

Copyright © 2007 Ned W. Schmidt - All Rights Reserved

GOLD THOUGHTS are from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report , monthly, and Trading Thoughts , weekly. For a subscription go to http://home.att.net/~nwschmidt/Order_Gold_EMonthlyTT.html

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© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Jonathan Kasembe
11 Feb 08, 17:47
Purchasing Power of Gold versus US Dollar

Due to the current situation of the US economy and hence the way the US Dollar is losing value. I think it is high time that the Gold Standard be considered to be used again as the Gold has done well in maintaining its purchasing power.

There will come a time that we may lose the value of very important items such as crude oil, since the US Dollar may continue to fall. This will be very serious.


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