Rising U.S. debt, money supply lead investors to dump dollar, buy gold. You shouldn’t.

In life, the golden rule is to treat others as you would have them treat you. In times of crisis, for many, the rule changes to “hoard the gold”.

An expanding deficit in the federal budget and an increase supply of money from the Federal Reserve have encouraged investors to rid themselves of dollar-based investments and buy gold and silver. This investment strategy may prove unproductive.

In response to the economic shutdown, the Fed instituted new monetary policies designed to raise the money supply and spur economic activity. The money stock has risen 22 percent as the Fed buys both government and private debt.

These policy actions are more aggressive, and unconventional, than those employed during the financial crisis of 2008. Just as then, the price of gold has risen in response. At over $1,900 per ounce, gold is up 28 percent since the start of the year.

Investors’ appetite for gold is not surprising, as this commodity has often been perceived as a hedge against inflation. That is, as a hedge against a decline in the value of a dollar. But while the dollar has lost a lot of value against gold, its purchasing power in terms of goods and services is holding up well.

The inflation-adjusted value of the dollar against other currencies is still high. The U.S. dollar continues to hold its own in terms of goods bought elsewhere. Against the currencies of our major trading partners, the dollar is up 1% over that past 12 months.

Other indicators of inflation suggest a stable dollar. The yield spread (the difference between 2-year and 10-year Treasury notes) is only 0.5%, well below its 10-year average of 1%. The Dow Jones Commodity Index is lower for the year.

So, while the government’s policies certainly create risk and may ultimately result in inflation, gold and silver are not likely to help. The prices of these commodities have risen above their value as hedge.

Economic theory and historical evidence show that the best hedge against inflation over time is an investment in business. Stocks have outperformed both commodities and real estate over reasonable investor time horizons.

No need to hoard the gold. Put your money to work in the real economy.

Peter Crabb is a professor of finance and economics at Northwest Nazarene University in Nampa. prcrabb@nnu.edu