David Lentz

Oil Replaces Gold as the New Inflation Hedge

OK, fxtrader07 -- I'll bite. How do you store your gold? Got an armored vault in your basement, with appropriate secondary protection? And what stored will accept your gold in exchange for things like food and gasoline? Do you carry around a bag of gold dust or just cut off slivers from an ingot you carry next to your handgun holster?

Gold is ridiculously inconvenient and inefficient to use as a currency. You MUST exchange it for "real" coin of the realm (aka, USD), and pay a hefty exchange premium to convert, in both directions.

That said, it DOES have a value as a hedge against a lack of faith in the currency of the realm, but only in terms of another asset class.

And as I mentioned in the previous post, for the past few weeks (a short time, to be sure) the USD has been looking more like the strongest currency around, stronger than gold, as the Fed talks it up with veiled threats of rate hikes, which will become less veiled as higher prices stoke inflationary expectations.

Full disclosure: I currently hold WAY too much gold, in the form of ETFs and mining stock mutual funds, at around 30% of net financial assets -- the only thing keeping me in it is the possibility the Dubya will drag us deeper into a worsening fight in the Middle East, and his current efforts to push nuclear technology into the hands of the folks who gave us 9-11, the Saudis. But I keep gold as a hedge against crazy uncertainty, not against the dollar or oil.