The first part of this interview covered Paul van Eeden's background and laid out his views on gold, inflation and interest rates. In this final segment, we'll discuss what to do about this situation - how to translate this view of the world into investment action.

Paul has been working hard on a more accurate model for the money supply that will give investors a clearer picture of what's coming in terms of inflation and interest rates. The best way to get access to this information is to subscribe to his newsletter - something I strongly recommend.

As I write this, there are still a few seats left for the 2008 Agora Financial Investment Symposium, to be held in Vancouver, BC from July 22 to 25. Paul and I will be there along with the legendary Jim Rogers, Rick Rule, Bill Bonner, Doug Casey and a boatload of other excellent speakers. If you will be attending, be sure to drop me an email or leave a message on the Priced In Gold Hotline at 888-868-5656, and we'll see what we can work out for a get-together. Keep an eye out for my pith helmet!

Last year, in July of 2007, I attended the Agora Financial investment Symposium in Vancouver, BC. There were a lot of excellent speakers and sessions covering all aspects of investment, with quite a bit of emphasis on natural resources and a strong international flavor. One of the speakers who impressed me the most was Paul van Edeen. On my return home I subscribed to his newsletter - which has since become one of my favorites.

Last month I had an opportunity to interview Paul on the phone, and I picked up some great investment ideas and tidbits of investing wisdom that I am excited to pass along to you.

Because of it's length, I'm breaking the interview up into two podcasts. The first will cover Paul's background and lay out his views on gold, inflation and interest rates. In the second, we'll discuss what to do about this situation - how to translate this view of the world into profitable investment action.

I heartily recommend Paul's newsletter, and would love to see you at the upcoming 2008 Agora Financial Investment Symposium, to be held in Vancouver, BC from July 22 to 25. Paul and I will be there along with the legendary Jim Rogers, Rick Rule, Bill Bonner and a boatload of other excellent speakers. If you will be attending, be sure to drop me an email or leave a message on the Priced In Gold Hotline at 888-868-5656, and we'll see what we can work out for a get-together. Just watch for my pith helmet!

I recently came across a presentation made on May 20th to the US Senate Committee on Homeland Security and Governmental Affairs by Dr. Benn Steil, a Senior Fellow and Director of International Economics at the Council on Foreign Relations in New York, entitled "Financial Speculation in Commodity Markets" (pdf). Dr. Steil also gave a speech the week before at the New York Hard Assets Investment Conference entitled "Is the Dollar Doomed?" (text and audio).

One of my favorite quotes from his Senate presentation:

“Whereas the prices of oil and wheat measured in dollars have soared over the course of this decade, they have, on the other hand, been remarkably stable when measured in terms of gold — gold having been the foundation of the world’s monetary system until 1971. It is, therefore, reasonable to conclude not that we are a experiencing a commodities bubble, but, rather, the end of what might usefully be termed a ‘currency bubble.’”

And from the Hard Asset talk, this wonderful idea:

So how could gold make a revival as a sort of international money? Well, we don't actually need a government run gold standard anymore. There are already private gold banks. They've been growing for some time. Their growth has roughly charted the decline of the dollar. People buy digital shares in gold. Gold is held in vaults by these banks, and you buy digital claims on them, just like when you buy a stock today you don't have a physical certificate. You have a digital representation of that stock.

If we all owned digital shares in gold, and we were able to move money from our accounts between us, and we were able to walk around with smart cards carrying representations of this digital gold, we'd be able to travel around the world, and to transact with one another. Think about it. You would go into a café in Sao Paolo, and you would order your cappuccino, and you would pay with a smart card that would debit your account for some flake of gold. And since people have always had confidence in gold as a long-term store of value, there's no reason why it couldn't play that role.

Dr. Steil also comments on why gold is a better monetary choice than a basket of currencies or commodities:

The problem with a basket is I think it's too abstract for people to connect with as a long-term standard of value. In other words, a basket is probably going to have to be run by some sort of institution, and people will probably over time lose faith in the institution.

The reason why I suggest that digital gold may have more attraction for people is because a system based on one commodity with unique monetary properties like gold does not have to be run by an institution. You can have a competitive market developing around gold as an international monetary standard. So that's the reason I think gold would probably make a better money than a commodity basket that would have to be managed by some large institution.

He points out that while the US Dollar may not be doomed in the immediate future, the dilemma described in 1960 by economist Robert Triffin remains unsolved today: if a national currency operates as the international currency, this currency must be supplied to the world by running either large balance of payment deficits, or large current account deficits. But when we do that, people eventually lose confidence in this currency because it can be printed without limit.

So far the US has pushed its deficits higher than many economists of the 1980s thought possible - past 3%, then 5% and recently 7%. But at some point, people will say "enough is enough. We don't trust your management of the dollar any more." And as Dr. Steil says, "that's a very dangerous situation to be in."

These are quite remarkable discussions of the US Dollar, gold, Federal Reserve policy and the future of money. I strongly recommend that you read through them, study the included charts and think about the implications for your investments.

Reader Michael Chmura posed an interesting question today:

The USPS seems to be raising prices frequently. We have another one cent postage increase coming 5/12/08. Can you post a chart for US Postage priced-in-gold?

I was intrigued, and generated just such a chart of US Postage rates in USD cents and milligrams of Gold.

Until the late 1950s, the dollar was fairly stable, and so were postage rates, with the exception of the Great War and blip at the beginning of the Great Depression, where rates were raised, but quickly offset by a devaluation of the dollar. Rates rose rapidly into the early 1970s, peaking at about 62 mg. When the Dollar was uncoupled from gold and rapidly devalued, the rate collapsed to it's all-time low around 7 mg. Between 1980 and 2001, both the postage rate and the value of the USD were climbing steadily, putting postage in gold back into it's historical average region around 30-40 mg.

Since 2001, the value of the USD has fallen dramatically while postage rates have risen only slightly, resulting in some of the lowest real postage rates in US history. Today the rate is about 13 mg; after the rate hike to USD 42 cents on May 12th, the rate in gold will be around 15 mg - still only half the historical average.

What does this mean to us? Well, consider the new "Forever Stamps". Buying them today will save you 1 cent in postage after May 12th, and maybe more if the USPS raises rates again in the future. Such rate increases are pretty much a certainty, but are limited by the recently passed Postal Accountability and Enhancement Act to the rate of inflation as measured by the government's Consumer Price Index. The CPI is notorious for understating the true price level consumers really pay for the things they need, like food, fuel and energy.

Think of it this way… if there had been a "Forever Stamp" available for purchase in 2001 for USD 34 cents, a roll of 100 stamps would have cost 34 USD, or 4.1 grams of gold. Today that roll would be worth 41 USD… but you could buy a new roll of stamps today for only 1.3 grams of gold - about 1/3 the price in 2001!

The "Forever Stamp" would have been a great deal in 1980, but unless you foresee a strong US Dollar in the future, I suggest that you forget the "Forever Stamp" and stick with the "Forever Metal" - GOLD.

Thanks for the excellent question, Michael!

I've updated many charts to 4-April-2008, and added the Euro to the CAD vs. USD chart. It is worth noting that although the USD has fallen against the EUR and CAD, all three currencies have been losing value. They are just losing at different rates.

Another reminder not to be fooled by the apparent appreciation caused by currency expansion - price all your investments in gold!

Ever wonder how a stock or an index like the Dow Jones Industrials is doing at the moment, priced in gold? Is it up or down from yesterday? How much?

To do this the "old school" way, you would collect four numbers: the price of gold and the price of the security at the previous trading day's close, and their current prices, all in the same currency. Calculate the previous closing price of the currency unit (USD, GBP, JPY, EUR, etc.) by dividing 31.1035 by the gold price, giving the value of the currency unit in gold grams. Do the same with the current price of gold. Then multiply the prior closing price of the security by the prior closing value of the currency to get the previous gold price of the security. Multiply the current price of the security by the current value of the currency to get the current gold price of the security. Now subtract the security's prior close from its current price to get the gain or loss in gold grams. Divide this value by the gold price of the security for the previous day to see the percentage gain or loss.

Simple, right? Well, it actually isn't too bad once you've created a spreadsheet with the formulas in it… But what if you just want to peek at the prices, and don't have a laptop with Excel handy?

Any financial web site can give you a list of stocks with percentage changes… even from a cell phone browser. For example, the iPhone has a built-in widget that can do just this. You can use this to give an almost instant "reading" on a security's gold price action.

The proper formula for calculating percentage change in the gold price from percentage change in the currency price of gold (Pg) and percentage change of the currency price of a security (Ps) is:

( (Ps+1) / (Pg+1) ) - 1

For example, if gold is up 1.5% in USD and the Dow is up 2.0% in USD, then 1.02/1.015 = 1.004926, and the Dow is up 0.4926% when priced in gold.

But what if even that is too much work - or you don't have a calculator handy?

You can get a close approximation by just subtracting the gold change from the security change.

It is no accident that this figure is really close to what you get by dividing the percentages… for small values of Pg and Ps this will create only a tiny error. Even if the Dow were to fall 10% while gold rose 10%, the true gold price of the Dow would fall by (0.9 / 1.1) = 0.8182 - 1 = -0.1818, or an 18.2% drop. The "back of the envelope" method would suggest a 20% fall = pretty close for such a large percentage swing.

How to get the gold price? Tracking a gold ETF (such as GLD) is one easy way. It moves in lock step with gold by design. Let's take a look at my iPhone for some real world examples:

We can see right off that the Dow Industrials (^DJI) and Countrywide (CFC) are doing a lot worse than their USD prices would suggest - in addition to being worth fewer dollars, the value of those dollars has fallen as well! Tesoro (TES) and Silver Wheaton (SLW) are rising faster than the dollar is depreciating, so they are up in gold value, though not as much as their USD prices would make you think. And although BHP Billiton shares are worth more US dollars today than they were yesterday, the fall in value of the USD has more than wiped out the stock's apparent gain. Here are the actual numbers, by proper calculation and by the "back of the envelope" estimation method:

You can see that the values are very close.

You can also use this trick over any time period, as long as the percentage changes are both measured over the same time period. For instance, a news article may state that crude oil is up 14.2% for the year so far. Later in the article it may mention that gold has risen 13.2% YTD. This immediately tells you the true rise in oil prices is around 1% (if you do the full calculation, the actual change is about 0.88%).

So the next time you need a quick check on the gold value of a stock, commodity, currency or index, just subtract the percentage change of gold from the percentage change in your security of interest. You'll have good estimate of the change priced in gold.

Let me know if you have questions about this by leaving a comment, dropping me an email, or by calling the toll-free hotline at 888-868-5656.

In the post of March 11th, Big Day on Wall Street, I restated a Financial Times news story in gold terms but neglected to translate the Fed's bailout price of $200bn… When I went to make the correction, I was stunned!

On March 11th, 200 billion USD had a value of 6,413 tonnes of gold.

That's a LOT of gold! In fact, the total US Gold Reserve is 8,133 tonnes… so the announced bailout will cost about 80% of the total US gold reserve. In fact, the US Bullion Depository in Fort Knox only holds 4,570 tonnes of gold, with the rest in other vaults, primarily the Federal Reserve Bank of New York's underground vault in Manhattan.

Will Fort Knox be emptied to pay for this massive boondoggle? Of course not!

US Dollars are accounting entries with no intrinsic value whatsoever. The Fed will work all kinds of hocus-pocus - creating them out of thin air and using them to buy the bad loans and other non-performing assets of the banks that are in trouble, restoring their balance sheets to "robust health".

But you can be sure of one thing: in the long run, issuing 200 billion more dollars won't increase the purchasing power of the ones in your bank account!

In the short run, however, the USD could rise quite a bit - maybe 25% - and still be in a bear market. I suggest that you take advantage of any updrafts in the USD (bear market rallies like the one we saw late last week) to build your cash position by selling high-risk high-volatility dollars, and buying gold.

You might have noticed that my previous post on Silver and Stocks didn't once mention the US Dollar. Why? Because it's irrelevant. It may go up, it may go down. Most likely down, but so what? I try not to hold any more of it than necessary, unless I have reason to believe it's in an extended uptrend and decide to speculate.

Unlike stocks and commodities such as silver, individual fiat currencies do not have cycles that repeat over time - they are introduced, invariably debased at varying rates, occasionally supported for short periods, and eventually replaced as they leave the world stage worthless. This is the pattern that repeats, over and over through the centuries. The details are driven by the exigencies of war and politics. There is nothing new or different about the current US Dollar, Canadian Dollar, Euro or Yen.

Rome, France under John Law, Argentina, and the Weimar Republic in Germany are often cited as examples of failed fiat money systems. Of course the US had its own Continental Dollar (which created the saying "as worthless as a Continental") as well as Lincoln's "greenbacks" and the currency of the Confederacy.

Now, you might say that these are just banana republics and ancient history. Not so! Rome was the biggest economic powerhouse the world had ever seen, and it took over 700 years for its money to go from "good as gold" to worthless. Ever heard the phrase "as rich as an Argentine"? And France and Germany were counted among the world's most powerful economies; Germany, after several failed monetary regimes, is once more the mainstay of Europe.

"Yeah, but that was in the old days. It's all different now…", I can hear someone muttering. I don't think so - as I am writing this, Zimbabwe's Dollar is going through the same fate. Once a shining example of prosperity for the rest of Africa, it took about 13 ZWD to buy one gram of gold in 1980. Today it takes more than 225,000,000 ZWD to buy one gold gram, and inflation in Zimbabwe has been estimated at over 100,000% per year and rising.

My advice? Keep on hand what you need for your day-to-day transactions and to repay your fiat currency debts. Anything more than that is a wild speculation… too risky for my taste! And please don't be fooled by FDIC insurance on your bank accounts - they only promise to give you back your dollars. There is no guarantee that those dollars will buy as much as they did when you deposited them. Your FDIC insured account with a healthy $100,000 balance was worth 3,718 grams of gold on Dec 31, 2007. Today it is worth 3,089 grams. Think about that: a 17% loss in less than 3 months, in a fully insured cash account. And you can't even deduct the loss for tax purposes!

The point of all this? Forget the incredible shrinking dollar. Don't wait for some monetary messiah to return the world to sound money - take control of your own future, right now! Track your investment performance in real terms and always make your investment decisions by pricing them in gold. Say "BUY!" to things that are growing in gold value, and say "SELL!" to those that aren't. It's as simple as that.

Your financial future depends on it, and I'm here to help.

I realized yesterday that it is easy to calculate the price of an ounce of silver in gold grams if you know the gold-silver ratio (Duh!) You just divide the ratio into 31.1035 (the number of grams in an ounce.) And the ratio is well documented throughout much of history. For instance, the website Measuring Worth provides annual values for the gold-silver ratio going back to 1687. I've used this data to create a new long term chart showing the price of silver from 1700 to today, and added it to the Silver chart page.

Silver has historically been both a monetary metal and an industrial metal. Prior to 1872, the prices of both gold and silver were heavily supported by governments worldwide for monetary reasons. Silver has now lost most of it's monetary use and is almost exclusively industrial, unlike gold, which has most of it's above ground supply sitting in the vaults of governments, banks and individuals in the form of bars and coins.

Silver consumption is skyrocketing due to worldwide demand for consumer electronics and power, communications and computing infrastructure, although much of the silver "consumed" in industrial usage is eventually recovered through recycling. On the supply side, most silver production is a side-effect of mining other industrial metals such as copper, zinc and lead. These factors give silver a complex supply-demand picture, and a relatively volatile price when measured in gold, at least since 1872.

It certainly looks like silver is at the low end of it's range at the moment, and headed up. Looking at the "tops" in 1872, 1919 and 1968 it would be tempting to project another top between 2015 and 2020, somewhere north of 1.5 grams per ounce - a potential return of 140% over a 10 year period, given the current silver price of .628 grams.

Stocks are certainly much more volatile, as you can see in the chart of the Dow Jones Industrials. This means the opportunity for larger gains, but also the risk of larger losses. Using similar cyclic logic on the DJIA, seeing bottoms at 1932 and 1980, and tops at 1929, 1966 and 1999, it is again tempting to project the next bottom between 2010 and 2020 somewhere south of 100 grams, with the next top possibly around 2,200 grams but probably not occurring until 2032 or later. With the Dow currently around 370, these would be huge swings - down 75% and back up over 2000%!

Since 1991, silver is up about 80% from .346 to .628 grams per ounce. Over that same period, the Dow is up from about 214 to 370 grams - around 70%. But during those years, the stock index rocketed to 1,400 before falling back to 370. Looking forward, I see support at around 300, 150 and 50. That's a long way down.

For the next 5 to 10 years, I'd much rather be long silver than large cap stocks!

PS - One more thing I neglected to mention… companies can and do go bankrupt. That means their stock can become worthless, wiping out your investment entirely. Zip. Nada. Zilch. Goose-egg.

Even silver mining stocks can and do go belly-up. Physical silver cannot. It will always be one of the highest conductivity metals (both in terms of electricity and heat), it will always take an extremely high polish, and make beautiful jewelry. Its value in gold may rise and fall according to supply and demand, and be influenced by the availability of other alloys and the discovery of other uses, but it will never go to zero. Something to keep in mind in the perilous times ahead.

So what? It used to take about twenty US Dollars to buy an ounce of gold. Now it takes over a thousand of them.

That ounce of gold hasn't changed one bit. In fact, an ounce of gold is still an ounce of gold, just as it has been for thousands of years. It can be used to make the same amount of jewelry, it can be beaten out into the same amount of gold leaf, it can plate the same amount of wire, and in general, can be exchanged for about the same amount of other goods and services as it always could. It buys much more of many items than it used to, thanks to global trade, the productivity improvements of automation and the wonders of Moore's Law.

Unfortunately, those same factors have enabled the mass production and distribution of huge quantities of US Dollars, as well… and this is not good for the value of a currency, however convenient it may be in the short term for bankers and politicians.

Remember that dollars are created and destroyed by fiat. They are mostly accounting entries that can come and go at the speed of light, changing the purchasing power of your bank accounts and investments without notice. Don't be fooled by this slight of hand - keep your eyes on the true value of things you care about by pricing them in gold.

Note that many charts on the site have been updated to March 14th. I am still working on getting the wheat, copper and CAD charts working - please be patient.

If you have questions or comments please email me or call the hotline at 888-868-5656.