I can’t help but think that with all the money the Government is dumping into the economy, particularly money we don’t have and must borrow or print, that our country is due for some serious inflation in the somewhat near future.  You can’t dump trillions of extra dollars into an economy and expect the value of the dollar compared to the cost of goods to stay the same.

So, in my macro-economic scope, if this is what’s coming, how can I capitalize on it?

If you believe that inflation in our country is around the corner, where can you put money to either hedge against the negative trend, or perhaps increase your return?  To answer that question, you have to understand what inflation really is in order to know where to funnel your money.

What Does Inflation Mean?

Inflation is the rate at which the general cost of goods and services compares to purchasing power for those goods and services.  For instance, if the value of the dollar goes down and the intrinsic value of, say, toilet paper stays the same, it will take more dollars to buy toilet paper with rising inflation.

There are lots of things that could devalue the almighty dollar, and directly diluting the value by printing more money is one of them.  If you put it in investment terms, it’s a bit like diluting stock by printing more shares to raise capital.

To be certain, sometimes diluting stock or currency can be a good thing so long as the return on that money is greater than the cost of borrowing the money in the first place.

So how do I hedge against inflation?

Gold.

Gold has been the time-tested and preferred hedge against inflation when markets panic and governments try to “help”.  The reason?  Gold is the universal currency that holds its own value.  Sure, it’s valued in US Dollars on the open market, but since its accepted as a form of payment around the globe, the real value of the precious metal precedes the US currency.

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Economics, Investing crude oil, GLD, hedge, Inflation, investment, TIPS, treasury

Needless to say, I couldn’t pull the trigger today on GE (GE: web, chart, Y!)  or Ford (F: chart, web, Y!).  As I’ve mentioned before, I think both stocks are worth looking at for long-term runs, but I don’t think enough confidence has returned to the stock market to buy any equities, but I’m still trying to play with gold.

It’s tough to tell where the ceiling will be put in place on GLD, but I think money will continue flowing into the precious metal as a safe haven until the confidence returns, both to the markets and to government financial policy.

Unfortunately I think it will be a while before confidence returns to either one.

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Investing Ford, GE, GLD, gold

For the third day in a row, gold has strengthened as the market continues to digest the U.S. economic plan (or lack of a plan to be more specific).

Analysts claim that stocks lost ground yesterday even in the wake of a positive retail sales data report because of the lack of confidence in the governments economic package and an overall lack of investor confidence in the economy.

Gold traded up $4.70 an ounce to $948.50 in New York, the highest the metal has been since July.

Corner Office Comments

My buy in of the Streetracks Gold Trust (GLD: chart, web, Y!) last Tuesday seems to be gaining, and I suspect the trend will continue, at least until Tim Geithner releases more details on the bank and credit bailout… round two.

Investing GLD, gold