Dollar Index and Monetary Base

To gauge the likelihood of a near-term US Dollar crisis, there are two indicators that are helpful to look at. The first is the chart of the US Monetary Base as published by the Federal Reserve. A rapid growth in the monetary base as compared to the growth in the US GDP is one indicator of coming inflation which devalues the Dollar. Inflation robs savers of purchasing power over time.

An important second measure of the US Dollar is the Dollar Index. This compares the strength of the US Dollar relative to a basket of other leading world currencies. If the Dollar is collapsing, it would show-up in this index as a decrease in the Dollar index.

US Monetary Base

The Federal Reserve has been printing money in huge quantities since 2008. If “inflation is always and everywhere a monetary phenomenon“, as famously stated by the Noble Laureate Milton Friedman, then understanding the trends in money supply is important for understanding this important driver of future inflation. This chart from the Federal Reserve shows the Monetary Base. Notice the very rapid increase in the monetary base since the outbreak of the financial crisis in 2008. The “monetary base” is also called high powered money, and typically only includes the most liquid currencies. Many analyst look at this very rapid growth in the monetary base as a precursor to high inflation coming our way. The European Unions monetary base has exploded upward in much the same way as has the US monetary base.

US Dollar Index

Another key indicator of US Dollar strength is the Dollar Index. The Dollar Index is calculated from the exchange rates of six other currencies. The other currencies include the euro, British pound, Japanese yen, Swiss franc, Canadian dollar, and Swedish krona. The Dollar Index began in 1973 with a value of 100. The current index value is relative to this starting base value. A value of 85 means that the U.S. dollar had a 15% decrease in value since the starting date in 1973. Click Here to see the Index value and its trend over time. If the US Dollar is collapsing it is doing so relative to other currencies. The Dollar Index shows you how the US Dollar is doing relative to other world currencies.

To protect wealth over periods of financial turmoil, many investors turn to investment vehicles that can preserve wealth when and if a currency crisis unfolds. In the United States many people choose to set-up a self-directed gold IRA. An IRA is a tax advantaged vehicle to own and hold physical precious metals such as gold, silver, platinum or palladium. It is easy to set-up a self-directed IRA to hold gold or another precious metal. Get the Investment Guide that provides the information you need to set up your self-directed IRA. Click on the image below and fill-in the contact info on the right side of the page that opens. The Gold Kit, which includes the investment guide, will be sent to you.


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Gold Investment

It’s been said a thousand times that investing in gold is better than other investments as an insurance against financial panics or currency collapse. People gold investmentknow that investing a portion of their wealth in gold bullion may help reduce overall portfolio volatility in a market that is experiencing paper asset volatility. However, what’s not clear to them is how best to own gold and actually hold it in a physical form. A self-directed Gold IRA is one element of a retirement portfolio that is used to hold physical gold. It is a preferred method to own and hold physical precious metals such as gold by many investors.

Gold Investing

The topic of putting money into gold is often oversimplified, and therefore misconceptions with issues related to pricing are common.

By definition, the spot price is the price of immediate delivery between market participants, and is always used to set the current asking price of a gold retail product. The retail price includes a mark-up or premium over the spot price. It’s good to know what to expect before your buy since some investors only realize that the spot price is different from what they eventually pay at the point of purchase.

Other expenses involved are shipping, handling and insurance costs. In a Gold IRA account your custodian will typically take care of all this.

How to Invest in Gold

You should purchase gold products that are 0.999 fine. An example would be the American Gold Eagle and the South African Krugerrand. They are both gold coins.

You could also go for gold rounds, similar to gold coins, though they are not qualified as legal tender. These may come in a variety of sizes, i.e. in 1/10 ounce to 1 ounce in weight or other less common sizes.

Third, there are gold bars, which also come in a variety of sizes. They can range from a 1g bar to a 400 ounce bar.

To get the most metal at the best price, it’s recommended that you focus your buys on gold bars and rounds because they are cheaper than gold bullion coins of the same weight. The premium you pay for gold bullion coins is higher, partly due to design details and the fact that they are fabricated by government mints.

You should also factor in the size of your gold investment. If you want to make a large investment, then gold bars are ideal since larger sizes are readily available. Again, note that it is often easier to manage large gold items than it is to manage several small gold items.

However, the downside is large gold items will require that you to liquidate a larger portion of your portfolio when you want to sell, and such items may prove more difficult to sell. Therefore, considering various weights and sizes is important.

Where to Buy Gold

You can buy gold from precious metal dealers, private mints or government mints. Care should be taken to avoid buying numismatic coins or any other gold item meant for collecting. These are often very overpriced relative to their gold content and are often not a good buy for the investor, though the dealer can make good money from selling the overpriced coins to inexperienced buyers.

Make sure you consider the reselling factor. Some businesses will re-purchase gold they sold, while others may purchase gold they didn’t sell but at a slightly lower price.

Lastly, premium and fees should be taken into account as these vary greatly by dealer.

Benefits of Setting Up a Gold IRA that Holds Physical Gold

Many people have faith in gold, so they set-up a self-directed gold IRA as an element of their retirement plan to supplement their other investments. That’s because gold can help diversify a portfolio and reduce the volatility of the overall portfolio value over time.

In 2004 an ounce of gold cost about $400. In 2014 the same gold cost about $1,250. As the fiat currency supply continues to rise much more rapidly than growth in the economy the price of gold over time tends to increase.

There are tax benefits to IRA gold investments. When you retire, you’ll want to cash-in that gold over time to meet your expenses. That gold can grow inside an IRA over  the years without having to pay annual taxes on any value increases.


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You don’t need to report gold investments to the IRS. In case of premature withdrawals from an IRA penalties are waived under some instances such as for medical issues or disability. Gold is highly liquid, making it an easier asset to sell at any given time.

Conclusion – Gold Investment

All these points make it clear that setting-up a self-directed Gold IRA to hold physical gold – or other precious metals – has many benefits inside a portfolio. When the value of gold rises to offset losses in the value of paper based assets such as stocks and bonds that reduces the portfolio volatility and helps preserve the overall wealth of a portfolio for retirement.

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