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By Steven P. Orlowski, StreetAuthority

I recently watched the classic man-eating fish movie Jaws and the latest action in the precious metals space reminded me of the tagline for the film, Just when you thought it was safe to go back into the water.

Is it safe to swim in the water? Or is Jaws still lurking out there, the physical embodiment of a financial world gone lethal? Can gold still protect us?

Gold has had a magnificent run during the past 10 years, doubling in value since 2008 alone. Gold has set and broke several new price records, most recently reaching $1,500 per ounce on the Comex division of the New York Mercantile Exchange in Tuesday’s trading.

The most commonly-traded gold exchange-traded fund, the SPDR Gold Trust ETF (GLD ), followed suit, closing just shy of $146.00 a share, an all-time high. Mirroring these moves was gold’s less valuable (and possibly more appealing sibling) silver, which has been hitting 31-year highs almost daily.

Gold mania is seemingly at full strength. But questions remain. Is profit taking the next move? What if you are among the majority of investors who have yet to dip a toe into the water? Is it safe to dive in?

Let’s look at three fundamentals regarding gold, along with the rational outlook that should correspond with these facts:

Naturally, I’m not referring to core inflation, also known as the government’s consumer price index. The CPI is like the calm surface water that hides the beast beneath.

Headline inflation, which is the measure of the total inflation in the economy. is running very hot. There is increased demand for resources thanks to growing economies worldwide and corresponding shortages developing in food, energy and elsewhere. Gold is benefiting from inflation and there seems to be little reason to expect it to slow down.

Money creation in the United States has excess dollars chasing these aforementioned goods. Some think this is a good thing. Some will argue that the Federal Reserve will eventually sop up the extra liquidity. But the reality is they never really will. The dollar has lost 95% of its purchasing power since 1913, the birth-year of the Fed. I see no circumstances under which the dollar will not continue to fall long-term. It will bounce up now and then, but if nothing else, the past 40 years have cemented the dollar’s future — and the trajectory is to the ocean floor.

From people, institutions and governments — gold is wildly in demand like the cheesy Jaws merchandise sold during the record run of the movie in the 1970s.

Faith in virtually all currencies has been shaken, if not destroyed, and will probably never be restored.

The dollar’s reserve currency status is threatened. More than threatened, it is visibly on the way out. What was once mere speculation has evolved into blatant measures to see it replaced. It will happen, but it will also take years. When we see countries like Venezuela and China trading with each other without using dollars (or any other currency) the evidence is irrefutable.

We also see many countries increasing their gold holdings (China’s has increased from 600 metric tons to 1,054.1 metric tons since 2003), the logical defensive strategy when saddled with hundreds of billions in depreciating dollar reserves: stockpile commodities and natural resources. I give you dollars and you give me gold, oil, or steel — that’s a fine exchange for me.

3. Government spending

The U.S. government is losing its credibility. Speculation that the United States will have its credit rating lowered was fueled this week after ratings agency Standard & Poor’s lowered its outlook on U.S. debt from stable to negative.

The United States is the largest debtor nation in the world, nee, in all of human history. Once upon a time, it was the largest creditor nation in the world. In the 1980s, it loaned other countries money, money it really had. Now it borrows massive amounts to service its debt. The nation’s well documented entitlement obligations are helping to catapult its annual budget to fantastical extremes.

Action to Take: Keep your gold or buy some.

The facts argue that gold should continue to rise; and not just in dollar terms. Many of these observations can be applied to other countries and currencies as well. I’d love to be optimistic regarding the United States’ financial future, but right now things look grim. Jaws is still out there.

P.S. We found an obscure mining company that tossed back 19% in dividends last year (plus another 34% in capital gains). If you think that’s impressive, wait until you see this video.

Disclosure: Neither nor StreetAuthority, LLC hold positions in any securities mentioned in this article.

Steven P. Orlowski is a certified financial planner and a veteran investment adviser. He has helped retire hundreds of people while educating his clients on the methods of retirement income planning, estate planning and investment planning. Steven has expert knowledge of the financial markets — notably commodities, precious metals and emerging markets — as well as the domestic economy.

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