Right now, all the talk is about deflation. And the main government weapon against deflation is the printing press. The theory the Fed is operating under is that it can keep printing more and more dollars to create inflation, or at least stave off deflation.

Since the fear of deflation is so great (and we�ve seen how bad things are in Japan, which is currently suffering with deflation) the likely outcome of the government�s deflation-fighting strategy will be that the government overshoots� it will actually create too much inflation, just to be sure.

If that�s the case, you�d better know where to invest to protect (and grow) your portfolio value. So, let�s take a look at the annual returns of various asset classes over 1968 to 1979, the last period of inflation.

Average Annual Returns 1968 to 1979
19.4% Gold
18.9% Stamps
15.7% Rare books
13.7% Silver
12.7% Coins (U.S. non-gold)
12.5% Old masters� paintings
11.8% White Diamonds (clear)
11.3% Farmland
9.6% Single-family homes
6.5% Inflation (CPI)
6.4% Foreign currencies
5.8% High-grade corporate bonds
3.1% Stocks

Look here� stocks and bonds are at the bottom of that list� actually losing money versus inflation. And gold is at the top of the list. So, the big question is how much of your portfolio is in gold or other hard assets? If the answer�s none, you�d better get some in a hurry�

The �Simple� Reason for Gold
Gold is always a winner during inflation. You can make dollars out there. And the next result is that a paper dollar is worth less when there are more of them. Consider this scenario:

Say the supply of gold stays roughly the same. But say the supply of dollars out there increases dramatically. What should happen? It should cost more paper dollars to buy an ounce of gold. And that is exactly what has been happening. Gold has risen from a low of around $260 an ounce to $360 an ounce in the last two years.

Chances are this trend will continue as deflation (falling prices) is a natural consequence of a competitive economy in peacetime. So chances are the Fed will be �fighting� this battle for a while. And therefore, chances are gold will be an excellent place to profit from this sure fight in the years to come.

It�s not just the U.S. The governments in charge of all the major currencies of the world (dollar, euro, and yen) want their currencies to be weaker, which will cause their paper monies to be worth less versus gold. Each has its own reasons for desiring a weaker currency (the U.S. is trying to head off deflation; the Europeans don�t want to bog their weak economies down with an expensive currency; and the Japanese need to get out of debt). If you don�t fully understand these reasons, that�s okay. All you need to know is that these reasons are not going away for a while.

These governments will attempt to engineer their currencies lower. Meanwhile, gold just sits there. Its supply doesn�t expand or contract much. So if all the major governments start printing bills, yet the amount of gold remains the same, it will take us more bills (it will cost us more money) to buy gold. The longer the governments attempt to engineer their currencies lower, the more those currencies will lose value against gold (which is the same as saying the more gold will rise against paper money).