Gold has been one of the hottest topics in the investing world in recent months, and with good reason. In 2009, investors received a 25 percent return on gold—the biggest absolute annual gain in three decades. Arguably, gold’s nine-year streak of positive returns is even more impressive.

If you’re considering whether to invest in gold, it’s important to understand the close relationship between the value of gold and the value of the dollar.

A Brief History of Gold and the Dollar

To understand how and why gold has had such a historical run-up, a little history lesson on the relationship between gold and the dollar is helpful.

The relationship between the dollar and gold is tied to the concept of tangible assets vs. financial assets. To put it simply, gold has real value, while the dollar is a representation of real value.

In 1944, the Bretton Woods Agreement launched the first system of convertible currencies and fixed exchange rates, requiring participating countries to maintain the value of their currency within a narrow margin against the U.S. dollar, which was fixed at a rate of $35 per gold ounce.

However, in the 1950s and 1960s, the increasing supply of U.S. dollars along with capital outflows aimed at Europe’s postwar recovery put downward pressure on the dollar.

Eventually, a series of dollar devaluations in the early 1970s ended the Bretton Woods system, allowing the dollar to be freely traded and freely sold, beginning the long drawn-out period of the falling dollar. [...]

Gross domestic product (GDP) figures provide a convenient snapshot of a nation’s economic health. Unfortunately, we too often draw conclusions based upon GDP numbers alone, overlooking underlying factors.

Although a positive GDP report bolsters confidence about the country’s economy, it is important to look beneath the surface to assure that such optimism is supported by reality. The following is a recent example.

Quarterly GDP numbers are always revised three times. The original estimate for third-quarter growth in the U.S. marked the economy expanding at a 3.5 percent annual pace. A month ago, economists dropped the number to 2.8 percent. And most recently, the Commerce Department revised the third quarter GDP figure to 2.2 percent.

These GDP numbers mark the biggest positive growth in a quarter since 2007. On paper, the economy seems to have finally stabilized from the free-fall of the deep recession. Looking closer, however, I’m less optimistic of a fast recovery for a two big reasons. [...]

I know what you’re thinking: How can high unemployment rates, declining stock markets, and having less cash in your wallet be good things? We like to think that in a perfect world, we would never have to endure the hardships associated with economic downturns like lost jobs, watching our 401(k) accounts dwindle, or worrying about how we’re going to keep the lights on and the refrigerator stocked.

But the truth is: recessions are part of a normal economic cycle in capitalist societies. In other words, recessions are necessary evils.

On the bright side, there are three reasons I believe recessions are actually good for the economy:

1. People’s attitudes change (for the better)
2. We see growth and innovation in underdeveloped sectors and shrinking of overcrowded, bloated sectors
3. We have the opportunity for self-evaluation

[...]

My father drives an old Lincoln town car that has over 300,000 miles on it. That’s right, 300,000. Not only does he drive it, but he commutes over 90 miles each way in it, every day. Everybody who knows him thinks he should have gotten a new car oh, about 100,000 miles ago. But my dad is fanatically frugal and, perhaps more importantly, he simply likes his car. He’s determined to drive that old Lincoln until it simply doesn’t want to drive anymore. Unless the so-called “cash-for-clunkers” bill becomes law. The bill (which the House passed it today) could offer drivers like my dad up to $4,500 towards a new, more fuel-efficient ride. What’s the cash-for-clunkers bill all about? And could you benefit? [...]

President Obama will ddress the nation again tonight at 8 p.m. Eastern time to talk further about the steps his administration is taking to bolster our uncertain economy. What would you want to ask him? What steps would you propose he include in his administration’s efforts to correct our economic situation? [...]

These days, everybody’s looking to save money. And with good reason—the more you can cut back on monthly expenses, the better prepared you’ll be to weather the recession, including the frightening prospect of losing your income. That said, there are a few things to which you should continue to allocate money as long as you possibly can. [...]

We are all holding our breath. We all want to know. Will the 2009 economic stimulus bill reverse our wayward economy? Unfortunately, it will take months, or longer, to find out. In the meantime, we can ask what this giant government spending plan will do for us—young Americans—individually. What will the 2009 economic stimulus plan mean for you? [...]

Layoffs are everywhere these days. My employer axed 20 more of my coworkers on Friday, and every week I hear about friends losing jobs at various companies nationwide. Layoffs suck, but given the recession we’re in, they aren’t a surprise. And although you can take steps to reduce the chance you will be laid off, you can never guarantee your job security. With that in mind, it’s a good idea to always be prepared for the possibility of being laid off.

Preparing for a layoff is a bit like writing your own will—it’s easier to put it off the task and hope you don’t need it. But find yourself jobless in the near future; you’ll be a lot happier if you’ve done a few simple things. Here are some basic steps to prepare for a potential layoff: [...]

Kicking off 2009, I’m optimistic about the economy. Are you? What do you think 2009 will hold for the economy and for your own finances? [...]

Capitol Hill is frustrated with Americans because we’re saving money, paying down debt, and not spending. How dare we! [...]