It's a tale of two assets caught in a web of unassailable statistics. And it all adds up to the biggest wealth-building opportunity of our lifetime. Let's take the first of these assets - the one that's headed for a severe correction. This asset is the U.S. dollar. One of the most basic rules in economics is that of supply and demand. Greater supply and lower demand leads to falling prices, while lower supply and higher demand leads to rising prices. In the past year, demand for dollars has risen as investors sold their stocks and other assets for the supposed security of cash. However, over the past year, the Federal Reserve has worked hard on our behalf to prevent the dollar's rise. The monetary base, one of the basic measures of the supply of dollars, has gone from $832 billion a year ago to over $1.6 trillion today. What's more, the Fed is committed to increasing the money supply in order to get banks to resume lending and bring our economy out of recession. So what happens as the economy recovers? Demand for dollars will fall, as people start buying other assets again. The supply of dollars, however, will remain high, so the dollar's value will correct sharply. You won't want to be left holding too many dollars when that happens. Now let's consider gold. Worldwide gold production peaked in 2001. Older mines are becoming exhausted, while few new mines of any size are opening. Consequently, supplies have been increasing at a slower rate. Meanwhile, demand for gold has been rising by about 7% a year – driven especially by investors who want a safer place to keep their savings than dollars (or euros or any one of a number of other currencies, for that matter). It’s no wonder that over the past decade gold prices have climbed 325% while the S&P has fallen 37%!
In fact, it's not just private investors who are buying more gold. Nations such as China have started turning to gold as a safer reserve asset than U.S. dollars. Over the next few years, I expect the demand for gold will continue rising simply because the world has lost some faith in other types of assets such as real estate, stocks, and cash. And that means gold prices are almost guaranteed to accelerate.
All this adds up to a fantastic opportunity for usto grow wealthier by applying this one simple idea: trade dollars for gold. Of course, if you really want to make a fortune, you'll buy not just physical gold (which can be a pain in the ass to store and trade anyway) but also shares in gold mining companies that are increasing their reserves and producing gold for a low cost. Every increase in the price of gold will add considerably to the intrinsic value of these companies. Wait for the pull-back this summer before buying.
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