U.S. Dollar Down 99% Against Gold Since Great Depression

Includes: GLD, UDN, UUP
by: Shane Brett

The price of gold (NYSEARCA:GLD) has been dropping steadily over the last couple months, and has now broken well below the psychological $1,500 per ounce barrier. Make no mistake -- this is a huge buying opportunity for the long-term investor. The best reason is this: The U.S. dollar has declined by 99% against gold over the last 80 years.

In 1933, an ounce of gold would have cost you just over $20. In 2011 -- 78 years later (less than a human lifetime) -- it would have cost you just under $2,000. By 2011, the U.S. dollar had lost 99% of its value against gold since the Great Depression. Back in 1933 during the teeth of the Great Depression, Roosevelt devalued the U.S. dollar by 70% vs. gold. The gold price had been one ounce to $20.67. The new price was one ounce to $35. This new price was a massive devaluation. It was followed by another huge decline when America came off the gold standard competed in 1971. This time the dollar was allowed to float freely.

The difference now is that over this 80-year period most of the world's central banks had the monetary printing presses turned off. However, since 2008 the Federal Reserve (among many others) has engaged in colossal currency debasement. The sheer scale of quantitative easing means the U.S. dollar will decline much more quickly and strongly against gold in the years and decades ahead. Currently, the U.S. economy is slowing improving and China may be arguably turning a corner. In the markets, the volume of money printing has pushed up stock prices to record highs and forced capital to look at risky investments for a decent return.

While quantitative easing" has prevented a very deep recession, it is important to note that this level of money creation is unprecedented and its outcome is largely unknown. Historically, from Rome and Byzantium in the third and tenth centuries to Weimar and Zimbabwe in the 20th and 21st centuries, massive currency debasement has always been a predecessor to high inflation and economic decline. This will force the gold price much higher against the U.S. dollar.

The U.S. has no choice but to devalue its currency in real terms if it ever hopes to payback its gigantic national debt, which has increased fiftyfold over the last 50 years to now near $17 trillion. Those looking to profit from gold should be investors with a long-term investment horizon and an understanding of how currency debasement will play out in the decades ahead. This is why the current weakness in the gold price is a massive buying opportunity to the contrarian long-term investor.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.