per cent of those dollars made their way to precious metals equity funds. Gold companies raised $78 billion in equity financings this past decade, which is the same amount of equity raised by technol-ogy companies in the first three months of 2000. CURRENCY OF OLD? Gold has been recognized as currency for more than 4,000 years. That changed in 1971, when then-president Nixon closed the gold convertibility window, barring foreigners from exchanging their U.S. dollars for a fixed amount of physical gold. This gave the U.S. government a licence to print money, with no immedi-ate concern for its consequences; namely, deficits, debt and inflation. The Chinese perspective is interest-ing. As the world’s largest gold producer, China is a massive gold importer and the world’s largest creditor, with more than $3 trillion in foreign currency reserves. The Chinese government encourages their growing middle class to buy precious metals to protect purchasing power. Since the Second World War, the global financial system agreed to price all commodities in U.S. dollars. As the world’s reserve currency, the U.S. dollar was awarded a triple-A rating, providing a reference by which all other assets are valued. A triple-A rating is granted only to currencies with sound government, a strict adherence to the rule of law, prudent control of the printing press, little or no debt, and a stable, expanding economy. The United States used to be the world’s largest creditor nation, and is now the nation most in debt. As of spring 2011, U.S. Congress is embroiled in his-torical debate on whether to raise the country’s debt ceiling, or face the risk of default. Although the S&P rating agency maintains its triple-A rating on U.S. sov-ereign debt, it has altered its long-term outlook to “negative.” Not only has the U.S. dollar been losing value compared to other major world currencies, but also it has been losing value versus commodities, in-cluding gold. Indeed, commodity prices have been increasing, but coupled with a weakening U.S. dollar, the value of com-modities has exploded higher, and gold continues to make new highs. Investment climates are riddled with question marks, clouded uncertainty and confused emotion. A prudent in-vestor aims for profit, but wisely hedges to minimize negative shock. During the last recession, gold was one of the few investment classes that provided positive returns. This fact will not be forgotten during the next recession. Despite all this talk of a gold bubble, the money flow paints a very different picture. Unlike fiat currency, gold is not a government liability. Investors should consider a five to 20 per cent investment weighting in hard assets, such as gold. • Canaccord Wealth Management is a di-vision of Canaccord Genuity Corp. member of CIPF. The views in this article are solely the work of the author, and not necessarily those of Canaccord. The information herein is drawn from sources believed to be reliable (Sprott Asset Management, RBC, CPM Gold Yearbook 2010, IMF, Thomson Reuters, BIS), but its accuracy and completeness is not guaranteed, nor in providing it does the author or Canaccord assume any liability. 32 • CANADiAN CHiROPRACTOR | JUNE 2011 www.canadianchiropractor.ca
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