What about Gold?

The question facing the long-term investor in gold is "when are the supplier nations (the manufacturing and commodity nations) going to demand payment in gold, or gold-backed currency"? The answer lies in the nature of the relationship that exists between supplier and user, which is symbiotic and mutually beneficial. Neither can prosper without the other; what is good for one is good for the other....up to a point. This holds true only while both parties are benefiting but as soon as either party ceases to benefit, the relationship must end.

At this time, the US dollar is holding up strongly; given dollars, you can buy anything you want. As a store of value, it is -- today -- perfectly good. So the supplier nations are still happy to be paid in dollars (or any other currency that can be exchanged for dollars on the open market). However, there is considerable concern that the dollar will lose its value by combination of deliberate actions by the Fed and factors largely outside the control of the USG (principally high levels of debt and insufficient assets).

The Euro has been exposed as a currency in at least as bad a situation if not much worse than the dollar. The Swissie is too small and needs to be linked to the EUR for trading reasons. This only leaves gold for the time being - in due course another currency might emerge and take over the baton from the dollar but that is some way off.

At this time there is no real alternative to gold as an alternative means of payment.

Presently, the value of the dollar is being supported entirely by fashion and confidence. If people lose confidence in the dollar, it will become unfashionable to hold it and its value will fall -- maybe very quickly indeed. Timescales? That's the $64,000 question but when it happens - if it happens - it will most likely happen very quickly over a period of days or weeks rather than weeks or months.