If these were normal times, we could understand the argument many gold skeptics try to make that gold doesn't make sense for most people as a long-term investment—their main points being that it doesn't generate interest and doesn't serve any practical purpose. As Warren Buffet has argued on a number of occasions, "It comes out of one hole only to be placed in another hole." To the gold skeptics, the meteoric rise in gold prices is explained away as 'speculators gone wild' because the average investor doesn't own any gold.

But these aren't normal times, and the gold skeptics are having difficulty explaining away the hundreds of tons of gold purchases currently underway by China and the BRIC countries. From a purely practical standpoint, there is only one reason these countries would want to amass significant quantities of gold, and that is because of its intrinsic value as a currency reserve.

In 2023, China purchased more than 250 tons, which brought its total reserves to around 16,000 tons, a more than 1,000 percent increase over a decade. China's gold reserves surpassed the U.S. several years ago, so it has not only the largest gold reserves in the world but also the largest foreign exchange reserves.  

The World is Losing Faith in the Dollar

Why is the rest of the world rushing to gold? It has become apparent to the world's central banks that the sun is setting on the U.S. as the global economic superpower. And, since the great financial meltdown of 2008, the international community, which holds as much as 70% of U.S. Dollar reserves, has been reassessing its position and questioning the dollar's viability as a lead currency.  

Countries across the globe have become more vocal about their discontent with the fiscal mismanagement of the U.S. economy. They look upon the U.S. with sheer astonishment as the government continues to spend and print trillions of dollars to rescue the financial institutions and borrowers at the root of the crisis.

The Dollar's Relationship with Gold

The trajectory is unmistakable. As the dollar continues its decline, the value of gold will increase because of its intrinsic value relative to the paper value of an unsecured dollar.                    

While there are sure to be periods of a strengthening dollar that will drive gold prices down temporarily, as has been the case against a weakening Euro, the rest of the world is becoming increasingly vested in the ultimate demise of the dollar as the world's reserve currency.  

That puts gold on a long-term trajectory of nowhere but up. Regardless of the price trajectory, when the dollar loses its reserve status, its value as a currency at home will come into serious question. A sudden loss of confidence in the U.S. Dollar at home will almost certainly trigger hyperinflation.  

What exactly is Hyperinflation?

Whereas normal inflation is measured in terms of monthly price increases, hyperinflation is measured in terms of exponential daily increases that can approach 5 to 10% a day. Hyperinflation occurs when the inflation rate exceeds 50% for a month or more. When hyperinflation enveloped the country of Yugoslavia in the 1990s, the inflation rate doubled each day until it reached the unfathomable rate of 300 million percent! In just the last few decades, countries such as Argentina, Brazil, Bulgaria, Poland, and Georgia have all experienced severe periods of hyperinflation.  

During a hyperinflation cycle, gold becomes a critical asset. When people lose confidence in a country's currency, gold will be one of the only acceptable forms of exchange. It will also be one of the only ways to preserve wealth amid a hyperinflation cycle. As a de facto currency, gold will have value as the means to buy goods and services, and, more importantly, it can be used to acquire assets such as real estate and stocks when the storm passes.  

The Time to Protect Your Wealth is Now

The time to accumulate gold in preparation for hyperinflation is while it is still a gathering threat. Once the spiral is unleashed, gold will be difficult to buy, and its price will surge. As the value of the U.S. Dollar turns negative, you couldn't possibly have enough of it to buy even an ounce of gold. If you wait until you are in the teeth of the monster to convert other assets into gold, your wealth will be devoured.

Just a few decades ago, no one could have imagined that the U.S. would lose its position as the world's economic superpower. The possibility of a financial calamity that could produce hyperinflation did not exist in anyone's mind. Today, any fair-minded person, after a thoughtful review of events past and present, would have to subscribe to the notion that the possibility not only exists, but the probabilities also increase exponentially with each trillion-dollar increase in our national debt. Then, the only consideration is whether they are adequately prepared to survive it.

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