Maybe, it's time to invest in gold. Inflation is coming and gold is one of the best hedges for inflation. There are two types of inflation. The first one is when the demand for a product exceeds the supply and the price increases. The second source of inflation is when a government increases the quantity of money to finance spending in a crisis. The Congressional Budget Office estimates that the US deficit will be almost $1.7 trillion in 2009 and $1.1 trillion for 2010, the largest deficits as a share of GDP since 1945. The projected deficit is four times the 2008 deficit, which was a record high for its time. President Obama presented in May 2009 a $3.55 trillion budget to Congress.

When inflation occurs, investors need to move to "hard assets" such as commodities, real estate and assets. Stocks and bonds don't fair as well during inflation. Inflation results in rising costs which in a slow economy makes it difficult for companies to pass on the price increases to their customers. Bonds are affected because interest rates increase during inflation, reducing the value of bonds.

Gold is usually a poor investment. It doesn't pay dividends or interest; it just sits there.
But, it is a storehouse of value. As investors worry about the value of the dollar, the economy and the US debt, gold begins to look better and better. Gold was at $880 an ounce at the beginning of the 2009. As of May 2009 gold was at $915.

There are only two bets on gold. The value of the dollar will decrease (inflation) or the supply and demand changes to favor the rising price of gold or a combination of both.

In 2002, Lew Rockwll noted that gold had risen from $266 an ounce in March 2001 to $326 in June 2002. In this period the US experienced the 9/11 attacks and a slumping economy. Rockwell wrote that the price increase resulted because "the Fed has been inflating the dollar as never before, driving interest rates down to absurdly low levels, even as the federal government has been pushing a mercantile trade policy, and New York City, the hub of the world economy, continues to be threatened by terrorism. The government is failing to prevent more successful attacks by not backing down from foreign policy disasters and by not allowing planes to arm themselves. These are all conditions that make gold particularly attractive."

The price of gold continued to increase from $326 in June 2002 to over $1,000 in 2008.

According to Tim Middleton with MSN Money, demand for gold is surging. As investors look for an inflation hedge, more people buy gold. The SPDR Gold Shares has seen its assets top $30 billion in April 2009 making it the 6th largest owner of gold bullion in the world, more than all but five nations and the International Monetary Fund, and three times as much as Great Britain.

Supported by this demand, the price of gold has remained at or near its highest price in history, $1,003.30. Oil-rich nations have been shifting reserves to gold. Any type of major conflict in the Middle East could increase demand for gold.

Gold investments don't help the economy. But when the dollar is expected to continue to lose value, it is a safe place to store its value.

Most gold produced today in the US comes from Nevada from low-grade deposits extracted from open-pit mines. Arizona's gold production is only a by-product from copper mining.

John Laub is the President of the CEO-CFO Group.

1. "Why Gold Prices Will Keep Rising." Tim Middleton. MSN Money. March 3, 2009.

2. "Deficit Now Projected at $1.8 Trillion for 2009." Political Punch. ABC News Senior White House Correspondent Jake Tapper. May 11, 2009.

3. "Why Gold?" Lewrockwell.com. Llewellyn H. Rockwell, Jr. June 8, 2009.

4. "Are Oil-Rich Sheiks Being Scared Into Gold?" Sean Brodrick. Money and Markets. November 2008.

5. "United States Public Debt". Wikipedia, The Free Encyclopedia. May 12, 2009.

6. "Inflation." Wikipedia, The Free Encyclopedia. May 12, 2009.

7. "Gold Mining in the United States." Wikipedia. The Free Encyclopedia. May 12, 2009.