To be sure, more than a few of our nation’s Founding Fathers owned gold and silver coins to preserve wealth at a time when paper currency wasn’t worth a Continental.

Washington, Adams, Jefferson, Hamilton, Franklin, and Madison, each likely held gold coins as a form of saving and to preserve wealth during years of high inflation. And they all, each and every one of them, while distrustful of paper currency, believed there should be a role for gold in the young nation’s monetary and banking system.

Alexander Hamilton, the nation’s first Secretary of the Treasury under President Washington, was responsible for our young nation adopting a bi-metalic standard with the dollar officially defined by fixed weights of gold and silver. Indeed, the Coinage Act of 1794 set the dollar’s value at 371.25 grains of pure silver and 24.75 grains of pure gold.

For bi-metalists, this put the gold-to-silver ratio at 15, suggesting today’s ratio near 75 may be greatly overvaluing silver and greatly undervaluing gold. Indeed, from a long-term historical perspective, this suggests now may be an opportune time to increase one’s gold holdings — and sell silver.

I recommend that today’s investors hold from five-to-ten percent of their investable assets in physical gold to preserve wealth, protect against financial-market instability, and hedge against inflation before consumer prices begin their almost certain advance.

This is sound advice our Founding Fathers would likely find prudent were they to witness the economic uncertainties facing our nation today.  

The Technical Picture

A number of indicators point to much higher gold prices later this year and beyond – and even more so if the yellow metal retreats still further in the days, weeks, and months immediately ahead. In other words, the deeper and longer the current gold-price correction, the steeper and longer will be the coming advance.

With gold having hit an important technical barrier around $1300 early this month, the yellow metal has subsequently backed off to trade near $1230 an ounce and even a bit lower in recent days.

This recent price retreat presents investors an attractive opportunity to initiate or increase their holdings of physical gold – and this recommendation will prove even truer if the metal corrects still further before what I call “the great advance” takes off.

In the meantime, the technical picture suggests gold prices may fluctuate within a fairly wide trading band – with strong support at key chart points all the way down to its multi-year cyclical low near $1050 . . . with topside resistance within the $1300-to-$1400 an ounce range.

Interest Matters

Recent indicators of a stronger U.S. economy have prompted many financial-market participants and gold pundits alike to expect the next rise in the Fed funds interest rate to be announced on June 15^th, following the mid-June Federal Reserve Open Market Committee policy-setting meeting. And, as the popular thinking goes, a rise in interest rates will weigh heavily on gold.

But, if history is a guide, we should expect both rising gold prices and rising interest rates over the next few years – much like the 1970s, during which time the price of gold rose from $35 an ounce early in the decade to over $850 an ounce by January 1980.

Again, a decade ago, from 2004 to 2006, the Fed boosted its funds rate from one percent to five-and-a-quarter percent – and gold prices soared from under $400 an ounce to over $700 an ounce – a 75 percent gain!

Most recently, in mid-December, the Fed took its first small step toward monetary restraint after years of monetary profligacy . . . and, wouldn’t you know it, contrary to widely held expectations, gold subsequently enjoyed one of its best four-month price advances in decades.

The financial markets and most gold traders have failed to grasp what matters is not the nominal interest rate but the real interest rate, that is the inflation-adjusted rate. Other factors may affect the gold price – but, when it comes to monetary policy, it is the real interest rate, not the nominal rate, that matters most.

Shrinking Available Supply Will Carry Gold Higher

Over time, a myriad of factors and forces will push gold prices much higher. At the top of my list – especially for the longer-term – are economic and demographic trends in China, India, and throughout the greater China region.

Simply put, the continuing flow of metal from Western ownership into strong Eastern hands is reducing the volume of readily accessible bullion available to satisfy private investors, central banks, and households that attach special cultural and religious significance to the yellow metal. And, much of this metal will come back to the market only at much higher, indeed stratospheric, price levels.

As a result, we expect gold will continue to be one of the best – if not the best – investment-asset class in the months and years ahead. In fact, by this time next year, the price of gold could challenge or even surpass their all-time high of $1,924 an ounce reached briefly in September 2011. And, as outlandish as it may seem, gold could double or even triple its historic high by the end of this decade.