Ask a Broker

ISSUE 505 | MAY 2006

This month, Lind Plus Senior Market Strategist Matt Krupski explains the relationship between gold and inflation.

Q: What is the relationship between gold and inflation?

A: Lind Plus Senior Market Strategist Matt Krupski answers:

In inflationary economies, the purchasing power of paper currency is declining. It is not desirable to be holding large amounts of paper currency in an inflationary economy, as the value of your dollar today will buy less tomorrow. The power of the government to increase and decrease money supply adds to the uncertainty of the future value of paper money.

Gold reserves, on the other hand, are known. While new gold supply can be discovered and mined, a large, immediate change in supply is highly unlikely. Therefore, gold is often considered a safe haven to store one's wealth. It is a hard asset with relatively steady supply, it is not subject to management decisions like a stock might be, not subject to weather or disease like other commodities (agricultural or meats) may be, and it has an historical basis as a currency. For these reasons, in periods of uncertainty and inflation, you often see investors flock to gold, and this increase in demand causes the price to go up.

While this relationship has often held true in the past, there is no certainty that this relationship will hold true in the future. Keep in mind that futures and options trading is not for every investor. Please feel free to contact me to help assess your current investment in precious metals and help develop a plan tailored to your individual risk profile and investment objectives.

Matt Krupski is a Senior Market Strategist at Lind Plus. He can be reached at 877-847-3034 or via email at mkrupski@lind-waldock.com.

Kristina Zurla Landgraf is editor of Lind eWire. She can be reached by email at editor@lind-waldock.com.

Futures trading involves substantial risk of loss and is not suitable for all investors.

Past performance is not necessarily indicative of future trading results. Trading advice is based on information taken from trade and statistical services and other sources which Lind-Waldock believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder.

© 2006 Lind-Waldock, a division of Man Financial Inc. All Rights Reserved.