Predictions For Gold 2022

It is worth taking a look back at some earlier predictions to help put things in perspective.

EXAMPLE NO. 1

Gold Forecast $6000, And Gold Mining Analysis Through Visualization January 23, 2012

Quote: “If the current gold bull market was to follow the timing and extent of the 70s bull market, the gold price would reach $6000 before 2014.”

The price of gold on the day the article appeared in print was $1679 oz. In March 2014 the price of gold was down to $1382 oz. and by year end 2014 gold was priced at $1181 oz.

How far off base can a price prediction be? Not only did gold not reach the target price, it went in the opposite direction – beginning that same month – and proceeded to decline by thirty percent over the next two years, ending at $1205.00 per ounce on December 31, 2014.

The problem is not the plausibility of $6000.00 gold. It is both plausible and possible. However, the prediction was specifically time-oriented and horrendously misjudged in terms of timing and direction.

EXAMPLE NO. 2

JPMorgan Forecasts Gold $1,800 By Mid 2013 February 1, 2013

Quote: “JPMorgan Sees Gold At $1,800 By Mid 2013 As South Africa “In Crisis” And “Escalating Instability” In Middle East J.P. Morgan Chase & Co. said gold will rise to $1,800 an ounce by the middle of 2013, with the mining industry in South Africa “in crisis,” according to Bloomberg.“

The price of gold on the date the headline appeared was $1667.00 per ounce. Five months later on June 29, 2013, the price of gold was $1233.00 per ounce.

The call for $1800.00 gold was a ‘safe’ prediction. Only an eight percent increase from the existing (then) level of $1667.00 would have resulted in a gold price of $1800.00.

But, as in the previous example, the price went south with a vengeance. In this case, gold’s price dropped twenty-six percent in five short months.

FINANCIAL MARKETS ARE THE NEW CASINOS

The time periods which we consider and focus on with respect to analysis and investing – be it gold, stocks, real estate, etc. – have become increasingly short-term. In fact, the financial markets seem to be more characteristic of casino-type activity. Investing has become speculation.

Also the volatility is exponentially greater. At times it seems more like a crap-shoot than fundamental investing, with products such as leveraged ETFs, options on futures, and more.

Don’t get me wrong. I am not against speculating. Speculators serve the markets well and provide liquidity which otherwise might not be there. Their role is critical to the orderly function of the markets. Things would always be worse without speculators. But the nature of the financial markets has changed radically and investors need to recognize that fact.

The single most serious factor of concern with regard to orderly functioning of today’s financial markets is systemic risk. This is true on a world-wide basis and no country or market is immune.

With these things in mind, can anyone really make predictions with any degree of reliability or accuracy? I think not. And the predictions that are made seem to be either too traditionally conservative given the explosive – and implosive – nature of the markets; or they tend to be just plain ridiculous.

CURRENT UPSIDE POTENTIAL FOR GOLD

The average monthly closing price for gold in July 2020 was $1971 oz. which was followed the next month by an intraday peak of $2058 oz.

Due to the additional loss in US dollar purchasing power since that time, the inflation-adjusted gold price peak for August 2020 is now $2114 oz.

With gold at $1820 oz. the current upside potential is limited to approximately $290 oz., ($2114 oz. – $1820 oz), or sixteen percent. (see The Meaning Behind Gold’s Triple Top)

On the other hand, with near-term potential downside for gold at $1375-1400 oz. (see Gold Has Lots Of Potential Downside), the risk reward ratio is unfavorable for bets on the long side.

SUGGESTIONS FOR 2022

A suggestion to the gold ‘swamis’: rather than more predictions, how about new resolutions? Some possibilities might include:

  1. Resolve to view gold for what it is – real money; not an investment.
  2. Study and learn the history of gold as money.
  3. Stop expecting gold to be the “next big thing”.
  4. Scale back your unrealistic expectations.
    Have a fabulous 2022!

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!

Effect of Deflation On The Gold Price

Over the past century, the US dollar has lost approximately ninety-nine percent of its purchasing power. The loss in purchasing power is reflected in a gold price that has increased one-hundred fold ($20.67 oz. x 100 = $2067 oz).

The effect of deflation on the gold price is different. To be more accurate, the effect of deflation on gold’s price is opposite to the effect resulting from inflation.

Deflation is characterized by a contraction in the supply of money. Hence, each remaining unit is more valuable; i.e. its purchasing power increases.

There is probably no better example of deflation than that which happened in the United States and the rest of the world in the 1930s – The Great Depression.

A huge contraction in the supply of money and credit led to financial and economic collapse. As per the definition of deflation above, there were considerably fewer dollars in circulation. The purchasing power of those dollars increased quite measurably.

During the depression, many people did not have much money. But the dollars they did have would actually purchase more, not less.

Prices for ordinary goods and services declined by twenty-five percent during the three years ending in 1932. This was in addition to an approximately ten percent decline that had occurred over the course of the 1920s.

With each dollar buying as much as 1/3 more than just a few years earlier, and with a stock market that had dropped by as much as ninety percent, inflation wasn’t a concern.

All during this time the price of gold was fixed was fixed at $20.67 oz. and convertible with the US dollar. Twenty US paper dollars were exchangeable for one ounce of gold and vice versa.

SOME CHARTS AND HISTORICAL EXAMPLES

Below is a chart (source) showing the gold price history for the period during which its price was fixed.

historical-gold-prices-100-year-chart-2022-01-03-macrotrends

The vertical leap upwards from $ 20.67 to $35.00 is accounted for thusly…

“In 1933, President Franklin Roosevelt issued an executive order prohibiting private ownership of gold by U.S. citizens and revaluing gold at $35.00 to the ounce. Also, U.S. paper currency would no longer be convertible into gold for U.S. citizens. Foreign holders (primarily foreign governments) could continue to redeem their holdings of U.S. dollars for gold at the “new, official” rate of $35.00 to the ounce.” (see A Loaf Of Bread, A Gallon Of Gas, A Ounce Of Gold)

After that, the gold price remained fixed at $35.00 oz for nearly four decades. This is shown on the chart above.

With that in mind, here is another chart for the same period of time. It shows the gold price in inflation-adjusted terms.

historical-gold-prices-100-year-chart-2022-01-03-macrotrends-2

Beginning in January 1934 and ending in November 1970 the purchasing power of an ounce of gold dropped by sixty-five percent. This is a reflection of the deflation that had previously occurred and which showed up in a US dollar which had grown stronger, not weaker. (Remember, this happened even though the nominal price of gold was fixed at $35 oz.)

There were fewer dollars in circulation and they were worth more – not less. As a result, US dollars were, at least for the time being, more valuable than gold.

WHAT TO EXPECT FROM GOLD NOW

Could something similar happen today? Yes. In fact, it may already be happening. See the chart below.

historical-gold-prices-100-year-chart-2021-08-09-macrotrends (1)

Inflation-adjusted peaks in the gold price in 1934, 1980, and 2011 were followed by multi-year drops of 65%, 83%, and 41%. A simple average of those three drops is 63%.

A drop of 63% from the inflation-adjusted peak in 2020 would take gold down to approximately $800 oz.

Those who expect the effects of inflation to continue to get worse and that deflation is unlikely and a long shot should not be complacent. The drops following 1980 and 2011 occurred in the absence of deflation.

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!

Gold Has Lots Of Potential Downside

Over the past year, the price of gold has made repeated attempts to move higher. Looking at a one-year price history of GLD in the chart (source) below, there is a series of progressively lower highs which seems to indicate staunch resistance to higher gold prices…

1 YEAR GLD

Before forming any opinions about what to expect for the next for gold, we need to look at some more charts with longer-term histories. Below is a two-year chart of GLD…

2 YEAR GLD

Here we can see that the series of progressively lower highs for gold (GLD) is almost sixteen months old. We can also see that there have been no credible attempts to break through the highs reached in August 2020.

Now lets look at a five-year chart (source) of physical gold prices…

5 YEAR GOLD PRICES (average monthly closing prices)

In this chart we can see that the past sixteen months of progressively lower prices appears to be a consolidation phase. The question, then, is whether gold prices are consolidating before moving higher – or moving lower.

The next chart is a ten-year history of gold prices…

10 YEAR GOLD PRICES

After the lows for gold in late 2015, prices moved progressively higher until August 2020. If we connect the low in November 2015 with the low in September 2018 there is a line of support that currently comes in at $1375-$1400 oz.

If gold is simply marking time before a retracement back to that same line of support, then prices could fall significantly and still maintain the overall uptrend which began in November 2015.

There is a zone of support for gold prices between $1200 – $1400 oz. where it traded for six years between June 2013 and June 2019. If gold prices were to fall to that area, that zone of support should keep prices from falling much after that. Except…

Not everything is determined by technical factors. Since higher gold prices are a reflection of loss in purchasing power of the US dollar, then a period of relative strength for the dollar would translate to lower gold prices anyway. There are no other fundamentals for gold.

Also, once gold has caught up to the effects of previous inflation, it tends to just mark time. We seem to be in one of those periods now.

Unless the US dollar continues to lose purchasing power at accelerated rates over an extended period of time, don’t expect higher gold prices.

As far as gold is concerned, the only thing that will take its price higher is further lasting deterioration in actual purchasing power of the US dollar. 

In the meantime, gold prices could see considerable downside action. The $1375-$1400 area is a reasonable near-term possibility. (also see What’s Next For Gold Is Always About The US Dollar)

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!

Even Gold Is Subject to Inflation

Most gold bugs think that a gold standard will solve our inflation problems. While it is true that gold acts as a restraint on governments and central banks desire to create and control money, it does not mean that inflation cannot happen just because gold is the money used.

The United States and most of the rest of the world, at one time or other, operated on a gold standard. Primarily, this meant that gold was the money of choice.

Since gold cannot be fabricated (fabricate – to invent or concoct (something), typically with deceitful intent) into existence, the debasement of the money supply cannot be accomplished with the same ease as central banks enjoy today.

Several centuries ago, independent rulers might clip coins and melt the clippings down, recasting them in the usual fashion. This meant that there were coins with small punch holes circulating with other coins that had no clips.

As more and more coins without punch clips disappeared from circulation, people became more aware of what was by then obvious – the two types of coins in circulation were not of equal value.

Also, there were more coins in circulation. The total money supply had increased considerably and the effects of inflation were apparent. Higher prices for most goods and services were taking their toll.

In order to allay the fears and suspicions of the general population, the rulers turned to dilution. All coins were cast and issued with a lesser proportion of precious metal (gold or silver) and a larger percentage of base metal (copper, nickel, etc).

The coins appeared to be identical, but further inflation was easier now; just reduce the precious metal content and increase the content of base metal in each coin. (see History Of Gold As Money)

Gold, Inflation, and Mansa Musa

Mansa Musa is considered by some historians to be the single, most wealthy individual in history and his wealth is estimated to be the inflation-adjusted equivalent of four hundred billion US dollars in today’s money.

The following is from Wikipedia:

Musa made his pilgrimage (to Mecca) between 1324–1325. His procession reportedly included 60,000 men, including 12,000 slaves who each carried 4 lb (1.8 kg) of gold bars and heralds dressed in silks who bore gold staffs, organized horses, and handled bags. Musa provided all necessities for the procession, feeding the entire company of men and animals. Those animals included 80 camels which each carried 50–300 lb (23–136 kg) of gold dust. Musa gave the gold to the poor he met along his route. Musa not only gave to the cities he passed on the way to Mecca, including Cairo and Medina, but also traded gold for souvenirs. It was reported that he built a mosque every Friday.

But Musa’s generous actions inadvertently devastated the economy of the regions through which he passed. In the cities of Cairo, Medina, and Mecca, the sudden influx of gold devalued the metal for the next decade. Prices on goods and wares greatly inflated. To rectify the gold market, on his way back from Mecca, Musa borrowed all the gold he could carry from money-lenders in Cairo, at high interest. This is the only time recorded in history that one man directly controlled the price of gold in the Mediterranean.

The “sudden influx of gold” constituted an increase in the supply of money which resulted in “prices on goods and wares greatly inflated”. This is a classic, historical example of inflation.

The economies of the regions that Musa visited were relatively industrious with a reasonably stable economy. And the gold which Musa carried with him was not, for the most part, circulating as part of the money supply in the world at that time. In a short period of time, large amounts of gold (i.e. money) were put in circulation. With more money available, more aggressive bidding for various “goods and wares” drove prices for those items higher.

The ‘higher prices’ for goods and wares was an inverse reflection of the loss of purchasing power of the money (gold) in circulation.

Gold is not immune to inflation. This is not an indictment of gold. But it does serve to illustrate the vulnerability of money regarding the consequences of inflation.

Mansa Musa acted benevolently, as an individual; and his actions and resulting effects were basically a one-time event.

On the other hand, inflation, as practiced by the United States Government and the Federal Reserve, is intentional and perpetual – over one hundred years old and still going strong. The effects of those efforts are unpredictable and volatile. And the value of our money continues to erode.

Whereas, Musa acted immediately to help alleviate the problem which his actions created by borrowing “all the gold he could carry from money-lenders in Cairo, at high interest”, the Federal Reserve purposely inflicts harm on the monetary system by continually expanding the supply of money and credit. This distorts every monetary measure of value we are inclined to rely on and at some point the system will implode.

The problems arising from Musa’s actions were systemic and not related to the ‘form’ of money in use. And those problems were limited because the money supply was limited. No one could produce more money (i.e. gold) by printing it.

Which is why governments hate gold. It is a restraint on their free-spending, expansionary policies. Even the example of Mansa Musa does not diminish the role gold plays in this regard. Or its rightful place as real money – original money.

(also see  The Gold Price And Inflation)

Kelsey Williams is the author of two books:  INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and  ALL HAIL THE FED!

Gold Is Not an Investment; Not an Inflation Hedge

The first article I posted at Kelsey’s Gold Facts is titled Gold Is Real Money. I began the article by listing several things which gold is not.

Two specific things which gold is not

  • Gold is not an investment.
  • Gold is not a hedge against inflation.

Gold Is Not an Investment

According to Investopedia:

“An investment is an asset or item acquired with the goal of generating income or appreciation.”

Since gold is not a producing asset, i.e., no dividends or interest, the remaining objective can only be to acquire gold and hold it for appreciation purposes.

Appreciation is an increase in the value of an asset over time…

“When an individual purchases a good as an investment, the intent is not to consume the good but rather to use it in the future to create wealth.” …Investopedia

The implication in the definitions and statements above is that as an asset increases in value over time, it creates wealth.

If gold is an investment, what is its value? Gold’s primary value is in its use as money. Gold is original money and the original measure of value for everything else.

To be considered an investment, gold’s value must have the potential to increase over time. Gold’s value, however, is constant and unchanging.

Below is a chart of gold prices for the past century. The prices are adjusted for the effects of inflation…

Since the price of gold peaked in 1980, there has been NO INCREASE in the value of gold; and a lot of volatility on the downside. The volatility in gold’s price has everything to do with the US dollar – and nothing else.

If you owned one ounce of gold in 1980 at $650 oz. and owned it in 2011 at $1895 oz., and again in 2020 at $2060 oz., there has been no increase in value.

Sure, the price went up; but the increase in price reflects only the loss in purchasing power of the US dollar (the effects of inflation) and not any increases in gold’s value. Also, there is no reason to expect anything different in the future.

As such, gold is not an investment; nor has it ever been. (see Gold Not An Investment; You Won’t Get Rich)

Gold Is Not an Inflation Hedge

Some people promote gold as a hedge against inflation. They are wrong on two counts.

First, they are incorrect in what they mean when they refer to inflation and second, gold is not a hedge against inflation.

Inflation is the debasement of money by government and central banks. The inflation is created by continually expanding the supply of money and credit. The expansion of the supply of money and credit cheapens the value of all the money in circulation, leading to a loss in purchasing power of the currency – the US dollar.

What most people usually mean when they say ‘inflation’ is an increase in prices.

A general increase in prices for most goods and services over time is the result of the loss in purchasing power of the US dollar. The dollar’s loss in purchasing power is an effect of inflation. The inflation, however, has already happened.

Inflation is an intentional creation of government and central banks. The Federal Reserve is always creating new money. Our banking system functions on a fractional-reserve basis.

Moreover, the effects of inflation are volatile and unpredictable. What happened in the 1970s was different from what happened after Federal Reserve actions in 2008 and again last year. And the intended effects of Fed inflation are losing impetus. (see Fed Inflation Is Losing Its Intended Effect)

Complicating matters is the tendency to refer to economic effects associated with supply demand issues as ‘inflation’ due to their impact on prices:

“The current share of rising prices resulting from changes in economic demand, such as supply chain bottlenecks, pent-up demand, etc. have nothing to do with inflation or its effects and are a totally separate factor in price changes for various goods and services.” (see

There is no hedge against government action to create and destroy its own money; but gold, when used properly, can act as a restraint on governments tendency to do so.

Even gold, though, is not immune to inflation.

What Gold Is

Gold is real money. It is original money. It is the measure of value for everything else. Its value comes from its use as money and that value is constant and unchanging.

Gold’s higher price in dollars, over time, is an inverse reflection of the decline in purchasing power of the US dollar.

Substantial price increases in gold of lasting duration come after the fact; not before.

We will need to see renewed, lasting, significant weakness in the US dollar, manifest in the form of much higher prices for everything we buy and sell, IF the gold price is going to move above above $2000 oz.

If that does happen, gold can help you preserve your wealth. Any increase in gold’s price would help offset the higher cost of living.

That is all you should reasonably expect from gold. To expect more than that is fantasy and delusion.

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!

Gold Is Cheaper Now Than in 1980

GOLD IS CHEAPER NOW

Gold is currently priced at $1772 oz., somewhat lower than its peak in August 2020 at $2060 oz. In either case, the gold price has increased considerably since 1980.

After forty years, though, one might be inclined to ask in all sincerity “Is that all there is?”

The question has merit. In inflation-adjusted terms, gold is actually cheaper today at $1772 oz. by twenty-three percent compared to it’s high in January 1980 at $850 oz.

50 YEARS OF HIGHER GOLD PRICES

Below is a chart (source) of gold prices over the past century. The prices are monthly average closing prices…

40 YEARS OF LOWER GOLD PRICES

Below is the same chart except that the prices are adjusted for the effects of inflation…

Gold Prices – 100 Year Historical Chart (inflation-adjusted)

The chart shows real (inflation-adjusted) gold prices per ounce back to 1915. As in the previous chart, the prices are monthly average closing prices.

Here is a table that contains the specific information related to the three peak price points on the chart immediately above…

FEBRUARY 1980 $ 664 oz. $2309 oz.
AUGUST 2011 $1825 oz. $2210 oz.
AUGUST 2020 $1970 oz. $2078 oz.

The column on the left lists the prices in effect on the date indicated. In other. words, the average monthly closing price for gold in February 1980 was $664 oz.; in August 2011 it was $1825 oz., etc.

The column on the right lists the inflation-adjusted prices which correspond to the respective price peaks. For example, after adjusting for the effects of inflation, $664 oz. in 1980 is the equivalent of $2309 oz. in today’s much weaker dollar.

The numbers in the table confirm what we saw in the first chart; that the nominal price of gold continues to increase reflecting the deterioration and loss of purchasing power in the US dollar.

In inflation-adjusted terms, however, the price of gold has not exceeded its 1980 peak and has actually failed to even match it, both in 2011 and 2020.

WHY IS GOLD DECLINING IN REAL TERMS?

Since gold’s higher price over time is a reflection of the ongoing loss in purchasing power of the US dollar, it cannot be expected to exceed previous price peaks on an inflation-adjusted basis. (see The Meaning Behind Gold’s Triple Top)

By the same token, it is not unreasonable to expect it to match the peaks. The one factor which is likely limiting gold’s price from matching previous price peaks is that the overall effects of Federal Reserve inflation are continuing to have less and less impact. (see Everything Peaked in 1980 – The Waning Effects Of Inflation)

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and  ALL HAIL THE FED!

Is $100,000 Bitcoin Possible?

VIDEO GAMES AND BITCOIN

After spending the better part of a day at the game arcade with two of my sons and a couple of my grandchildren, and amidst all the ringing bells and flashing lights, I found time for some brief reflection.

There seemed to be a huge disparity between the reflected scores and the accomplishments of the various participants.

For example, why is 200 points a “good” score in one game and 1000 points a “bad” score in another game?

We could ask similar questions, I suppose, about the scoring variations in organized sports, too.

Then, I thought about Bitcoin. What makes investors think Bitcoin is worth $60,000? And why is its price so much higher than other cryptocurrencies?

ALL CRYPTOCURRENCIES ARE FUNDAMENTALLY SIMILAR

Bitcoin, Ethereum, and other cryptocurrencies all have one basic attribute: cryptocurrencies are processes for the private transfer of money.

All cryptocurrencies operate within a system of decentralized control. This allows transactions to bypass the oversight of a central banking system; which is attractive for purposes of avoiding regulation and taxation.

Other than that, there are no fundamentals. Most certainly, there are no fundamentals which differentiate the various contenders in the crypto sweepstakes; and nothing that would command a price differential of 15-1 for Bitcoin over its nearest apparent competitor, Ethereum.

So, again we ask? What makes Bitcoin worth $60,000? Does Bitcoin today occupy a position of prominence in its respective industry comparable to Ford Motor Company one hundred years ago?

BITCOIN VS FORD AND SONY

A century ago, the name Ford was synonymous with automobile. Other manufacturers introduced variety and choice to potential customers which dampened Ford’s conservative image and lack of alternatives for buyers.

General Motors replaced Ford as the bellwether of the automotive industry and GM maintained its status as an automotive icon for many decades.

Not quite so long ago, forty years or so, Sony set the standard for retail electronics (televisions, CD players, etc.). The advent of devices for home video playback (video cassette recorder) and recording was marked by Sony’s entrant, Betamax.

Unfortunately for Sony, they seemed as stubborn as Henry Ford when it came to customer choice and new technology. Sony refused to offer a product in the newer VHS format and eventually lost considerable market share.

Is Bitcoin on the verge of something similar to that which happened with Ford or Sony?

RISK VS. REWARD FOR BITCOIN

Whatever one thinks about the fundamentals for Bitcoin, it is very true that Bitcoin has proven to be a speculation of huge significance. The question is “Can Bitcoin sustain and increase its lofty price?”.

The 52-week low for Bitcoin (BTC-USD) is $12,980; which is where it sat approximately one year ago. Recently, it set its most recent 52-week high at $66,930.

That is a more than five-fold increase in less than a year; a gain of over 400 percent.

Along the way, though, Bitcoin’s price was nearly halved after reaching the $60,000 plateau earlier this year. That’s a lot of volatility for investors with weak stomachs.

At the end of Bitcoin’s phenomenal price explosion in 2017 it peaked at just under $20,000. Then its price imploded even more spectacularly, falling to the $4000 level in 2018.

Aside from the volatility, the odds are not favorable for those who are looking for much higher prices for Bitcoin.

When it approached the $20,000 price in late 2017, Bitcoin’s increase could be measured in percentages numbering in the thousands.

After its subsequent fall from the $20,000 level, Bitcoin’s price did not exceed $20,000 until three years later, in December 2020; in essence, a zero return for three years.

At $60,000, Bitcoin is up only two hundred percent since then. That pales in comparison to Bitcoin’s percentage gains in its early years prior to 2017.

The expectation for Bitcoin to hit $100,000 really isn’t all that attractive and doesn’t provide much incentive for someone who owns it at $60,000.

Given Bitcoin’s history of volatility, the odds of a price drop of $40,000 from its current price back to $20,000 are just as realistic – and maybe more likely.

Kelsey is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!

Gold Facts and Fundamentals

After the gold price reached a high of $850 oz. in 1980, its price began a long decline that lasted over twenty years. But the decline was not just characterized by its lower price, which eventually bottomed around $250 oz.

More noteworthy was the lack of interest in the yellow metal, which continued for almost twenty-five years. This disinterest was accompanied by a dearth of available and pertinent commentary and news. Gold was simply not a subject of discussion for mainstream media. Journalists and analysts had plenty else to talk about with new all-time highs in the stock market, technology craze and collapse, terrorism attacks, real estate prices, etc.

Over the years that has changed. Gold’s price hit a new all-time high of just under $1900 oz. in August 2011. Then, quite painfully, it dropped to as low as $1040 oz. in Jan 2016. After peaking last August at $2060 oz., the gold price has fallen back to as low as $1675 oz. and is currently about $1770 oz.

This time around, though, there is no lack of interest in or shortage of commentary about gold. A plethora of experts have unleashed a barrage of information to help investors and others grow their knowledge about gold.

No doubt, this has been spurred on and enhanced by this century’s growth in digital communication. Investors in all markets have benefitted.

There are other factors, though. As the price of gold increased and the reality of severe cracks in the financial system became more apparent, there was a treasure trove of new information on the subject of gold. Also, extreme volatility in the stock market has investors looking for alternatives.

Unfortunately, there is a goodly amount of misinformation about gold available and some clarification is in order.

The following three facts are critical to a fundamental and accurate understanding of gold:

  • Gold is real money.
  • Paper currencies are substitutes are for real money.
  • Inflation is caused by the government.

GOLD IS REAL MONEY

Money has three specific characteristics: medium of exchange, measure of value, store of value.

A medium of exchange needs to be portable, which gold certainly is. And gold is and has been easily incorporated into recognizable forms and amounts for use within various standards of weight and measure. But what sets gold apart from every other item that has been used as money is its evidence as a store of value.

Nowhere is this more apparent than in a simple comparison between gold and the US dollar.

The Federal Reserve Bank of the United States was established in 1913. At that time the US dollar was fully convertible into gold at a rate of twenty ($20.67) dollars per ounce. You could exchange paper currency of twenty US dollars for one ounce (.9675) of gold in coin form. The coins were minted by the US government.

The key issue here is convertibility. Twenty US paper dollars was equal to and exchangeable for twenty dollars in gold.

During the past one hundred years, the United States government has suspended convertibility; banned the ownership of gold by US citizens; and then reinstated that legal right several decades later. Meanwhile, the US dollar – without any official backing by gold – has lost ninety-nine percent of its purchasing power. It takes one hundred dollars to buy today what one dollar would buy a hundred years ago. Whereas one ounce of gold will still buy today what it would comparably buy a hundred years ago.

PAPER CURRENCIES ARE SUBSTITUTES FOR REAL MONEY

The first gold coins appeared around 560 B.C. Over time it became a practice to store larger amounts of gold in warehouses. Paper receipts were issued certifying that the gold was on deposit. These receipts were negotiable instruments of trade and commerce which could be signed over to others. They were not actual currency but are a presumed forerunner to our modern checking system. (see History Of Gold As Money)

Gold is real – and original – money. Anything else is not.

INFLATION IS CAUSED BY GOVERNMENT

Inflation is the debasement of money by the government. The term government also includes central banks, especially the US Federal Reserve Bank.

Government causes inflation by expanding the supply of money and credit. That expansion of the money supply cheapens the value of all the money. Which is precisely why, over time, the US dollar continues to lose purchasing power. It takes more dollars today to purchase what could have been purchased ten years ago, twenty years ago, etc. And it has been going on for over one hundred years.

What most people refer to as inflation or its causes are neither. They are the effects of inflation. The increase in the general level of prices for goods and services is the result of the inflation that was already created.

GOLD IS NOT AN INVESTMENT

It is very important, too, to be clear about what gold is not. Gold is not an investment; nor, is it a hedge against inflation or deteriorating world conditions. It is also not insurance, or a barbarous relic.

When gold is analyzed as an investment, it gets compared to all kinds of other investments. Then technicians start looking for correlations. Some say that an ‘investment’ in gold is correlated inversely to stocks. But there have been periods of time when both stocks and gold went up or down simultaneously. (see Gold and stocks)

Quote: “Since gold doesn’t pay interest or dividends, it struggles to compete with other investments that do.”

The statement and any variation of it that implies a correlation between gold and interest rates is false. There is no correlation (inversely or otherwise) between gold and interest rates.

We know that if interest rates are rising, then bond prices are declining. So another way of saying that gold will suffer as interest rates rise is that as bond prices decline, so will gold. In other words, gold and bond prices are positively correlated; gold and interest rates are inversely correlated.

Yet, during the 1970s, the price of gold rose from $40 oz. to $850 oz. as interest rates on US Treasury bonds went from very modest levels to anywhere from 15-18 percent!

Why such apparent conflictions? Any explanation which emphasizes a correlation between gold and interest rates is unhelpful and incorrect.

It has become nearly universally accepted that gold will ‘benefit’ from the threat of war and conditions resulting therefrom. This was evident in the initial price action of gold as the controversy with North Korea reached the front pages several years ago. It is a very scary situation but it did not have any lasting impact on gold prices.

There is an initial ‘shock’ factor that seems to encourage traders to buy gold when an international event of consequence takes place. These could be terrorist actions, political elections, assassinations, even natural calamities; but the effect on the gold market is short-lived.

This is because any consequential and lasting impact on the price of gold is determined by what is happening to the US dollar, not the event itself.

CONCLUSION

The US dollar is the single, common denominator in all of the situations cited above.

The US dollar is a substitute for gold (i.e. real money). The price of gold is an inverse reflection of the changing value of the US dollar. The ongoing, never-ending deterioration of the dollar’s value means ever rising gold prices over time.

On the other hand, a stable or stronger dollar will be reflected in a gold price that remains stable or declines as the dollar strengthens temporarily. This is evidenced by the scenario we witnessed after gold’s price peak in August 2011 at close to $1900 oz and also during the twenty years following its price peak in January 1980.

Gold’s price is not an indication of its value. Its price is a reflection of the value of the US dollar. As the dollar continues to lose purchasing power, gold will continue to rise in price.

The case for gold is not about price. It is about value. Gold is real money and a store of value. The US dollar is a paper substitute for real money and a complete failure as a store of value.

(also see History Of Gold As Money and History Of Gold As Money)

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!

Inflation Or Deflation – End Result Is Still Depression

Inflation is the debasement of money by government and central banks. The Federal Reserve and all central banks practice inflation by expanding the supply of money and credit continuously and intentionally.

This debasement of the money results in effects that are harmful and unpredictable. One of these effects of inflation is an unquantifiable loss of purchasing power in the money itself.

The prices you pay today for most goods and services are higher than ten years ago, twenty years ago, etc. This erosion of value has continued to the point that the US dollar has lost ninety-nine percent of its purchasing power over the past century.

In other words, it takes one hundred dollars today to purchase the comparable equivalent of goods and services that could have been purchased one hundred years ago for one dollar.

Deflation is the exact opposite of inflation and is characterized by a contraction in the supply of money. Hence, each remaining unit of money becomes more valuable. The primary effect of deflation is an increase in purchasing power of the money.

The increase in purchasing power means you can buy more with your money – not less; and the prices for most goods and services will decline.

WHAT CAUSES DEFLATION?

We know that governments cause inflation and pursue it for their own selfish reasons. A government does not voluntarily stop inflating its currency; and it certainly isn’t going to actively reduce the total supply of money. So what causes deflation?

Governments – and central banks – cause deflation, too. Although deflation isn’t a normal practice of governments, its occurrence is the result of previous inflation effects which are unsupportable:

Deflation happens when a monetary system can no longer sustain the price levels which have been elevated artificially and excessively. (I think this is where we are now.)

Governments love the inflation they create. But with even more fervor, they hate deflation. And not because of any perceived negative effects on their citizens. It is because the government loses control over the system which supports its own ability to function.

WHAT TO EXPECT FROM DEFLATION

Regardless of the Fed’s attempts to avoid it, deflation is a very real possibility. An implosion of the debt pyramid and a destruction of credit would cause a settling of price levels for everything (stocks, real estate, commodities, etc.) worldwide at anywhere from 50-90 percent less than currently. It would translate to a very strong US dollar.

Those who hold US dollars would find that their purchasing power had increased. The US dollar would actually buy more, not less. But the supply of US dollars would be significantly less. This is true deflation, and it is the exact opposite of inflation.

The most severe effects would be felt in the credit markets and in any assets whose value is primarily determined and supported by the supply of credit available. Things would be much worse than what was experienced in 2007-08.

The biggest difference would be that the changes would result in depression-like conditions on a scale most of us can’t imagine. And the depression would last for years.

Imagine that groceries, gasoline, and house rent cost half of what you now spend. Whatever cash you have, or is available to you, would buy twice as much. You would have money available for other things. Deflation, itself, is not a bad thing.

Unfortunately, depressed economic conditions would make life for most of us nearly unbearable. You might not have a job. Or you might live in an area which experiences social unrest. Also, there could be disruptions in transportation and the orderly supply and delivery of various goods and services. (Sound familiar?)

RISK OF HYPERINFLATION

Sometimes the effects of inflation are hugely exacerbated and lead to “out-of-control general price increases in an economy”. This is referred to as hyperinflation or runaway inflation. It results from a collapse in purchasing power and the disinclination to use or accept the money in circulation. In some cases, the ‘money’ becomes worthless.

Hyperinflation is unlikely, though, for two reasons:

  1. Fed Inflation Is Losing Its Intended Effect: Recent upticks notwithstanding, the CPI rate been trending down for more than forty years and the effects of inflation are not meeting expectations.
  2. Fed Inflation Is Fueled By Cheap Credit: Dependence on cheap credit has increased the vulnerability of our financial system. The risk of a multi-asset price collapse is greater today than any risk associated with hyperinflation.

RECENT HIGHER CPI NUMBERS

Recent increases in the Consumer Price Index have convinced some that the effects of inflation are back in a big way and that much higher prices can be expected for quite some time. That is not necessarily so.

The last time the CPI exceeded 5% on an annual basis was thirty years ago, in 1990. Prior to that it was under 5% for eight consecutive years. Twice (1981, 1990) in the past forty years, the CPI exceeded 5% and both times it was followed by many years at rates significantly under that level. (see

Also, it is important to recognize that a goodly portion of the recent uptick in the CPI rate is not associated with the effects of inflation:

“The current share of rising prices resulting from…supply chain bottlenecks and pent-up demand, etc. have nothing to do with inflation or its effects and are a totally separate factor in price changes for various goods and services.” (see It’s Not Biden’s Inflation)

INFLATION ALWAYS ENDS IN DEPRESSION

Historically speaking, periods of entrenched inflation always end in economic collapse. There are many examples of ridiculously high inflation rates which ended at dramatically lower levels after a collapse.

An economic collapse can happen either with, or without, experiencing hyperinflation.

A credit collapse such as occurred in 2008 is an overnight risk that heightens with each passing day; and we saw last year how quickly all financial assets (including so-called “inflation hedges”) can drop in price by one-third or more.

Regardless of whether we experience hyperinflation or not, a credit collapse now or later, or further attempts to circumvent impending catastrophe – a full-scale depression will be the end result.

(also see: Inflation, What It Is, What It Isn’t… and The End Of Inflation?

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!

Still Waiting On Silver

Below is a chart (source) of SLV prices for the past week:

Silver prices gapped significantly lower at the open on both Thursday and Friday. The combined loss for the two days is almost six percent.

It’s true that two days price action doesn’t tell the whole story, but contrary to what usually happens in fairy tales, this story isn’t likely to end in similar fashion. The phrase “happily ever after” does not apply.

Nor can it be said with any conviction that there is a positive side to silver’s recent price action. No matter how optimistic silver investors are, false hopes are still “false”.

Below is a two-year chart of SLV:

While it is not drawn on the chart, there is an uptrend line of support which dates back to March 2020 and which was decisively broken earlier this summer in June. At that time, silver prices gapped down sharply, too; and again in August.

At this point silver prices are down more than 25 percent from their highs last August and appear to be headed lower. It isn’t unreasonable to expect SLV to land somewhere around $18 and spot silver at $19-19.25 – at least temporarily.

IS SILVER REALLY CHEAP?

In May 2021, I published an article titled “Are Silver Prices Really Cheap; And Does It Matter?” At the time, spot silver prices were approximately $27 oz.

The February Reddit false alarm was in the rear view mirror, and the silver price seemed to be consolidating at about ten percent below its high from last August which was in the vicinity of $30 oz…

“On an inflation-adjusted basis, most of the price history for silver is still under $20 oz. Even on an inflation-adjusted basis, silver is still more expensive than almost any other time in the past one hundred years.”

Silver back below $20 oz. is like returning home after a fun vacation. Familiar territory, but not much to get excited about.

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!

It’s Not Biden’s Inflation

The supposition, however, is incorrect. No amount of government spending causes inflation.

It is also true that abnormally higher spending by consumers does not cause inflation.

Most people think that the term ‘inflation’ is synonymous with ‘higher prices’.

The rising prices, however, are not inflation. Inflation has already been created.

DEFINITION OF INFLATION

“Inflation is the debasement of money by governments and central banks.“

Inflation is accomplished by expansion of the supply of money and credit. All governments and central banks inflate and destroy their own currencies intentionally.

The inflation leads to a loss in purchasing power of the currency which in turn shows up in the form of increases in prices for most goods and services.

Inflation is not created, or caused, by companies raising prices. It is not triggered by escalating wage demand, hoarding or supply shortages.

Changes in economic demand, hoarding, and bottlenecks in the supply chain for goods and services have nothing to do with inflation.

When someone says “inflation is back”, they are referring to rising prices. They are wrong on two counts.

First, the portion of rising prices resulting from the loss in purchasing power are the effects of inflation.

The current share of rising prices resulting from changes in economic demand, such as supply chain bottlenecks, pent-up demand, etc. have nothing to do with inflation or its effects and are a totally separate factor in price changes for various goods and services.

Second, the inflation isn’t back; because it never went away.

Inflation is an ongoing cancer for all currencies of the world and its effects are unpredictable. Governments and central banks never stop expanding the supply of money and credit.

This means, of course, that all currencies continue to lose purchasing power. The US dollar today is worth one penny compared to its purchasing power of a century ago.

ROLE OF THE FEDERAL RESERVE

The Federal Reserve is a banker’s bank. Its purpose is to create and maintain a financial system that allow banks to lend money in perpetuity.

We are bombarded daily with commentary and analysis regarding the Fed and their actions. We are treated to continual rehashing of the same topics – tapering, interest rates, inflation – over and over.

Fed actions, especially including the inflation that they create, are damaging and destructive. Their purpose is not aligned with ours and never will be.

Today the Fed is restricted by necessity to a policy of containment and reaction regarding the negative, implosive effects of their own making. (see The Federal Reserve – Purpose And Motivation)

THE FED IS THE PROBLEM

One of the self-proclaimed objectives of the Federal Reserve is to manage the stages of the economic cycle so as to 1) avoid recessions and depressions and 2) extend the prosperity phase of the cycle.

How well have they done? Not very well.

In their initial attempt to avoid and defer the natural corrections associated with economic recession, the Fed ushered in the most severe depression in our country’s history beginning with the stock market crash in 1929. Even former Fed chairman, Ben S. Bernanke agrees:

“Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”…Remarks by Governor Ben S. Bernanke (At the Conference to Honor Milton Friedman, University of Chicago -Chicago, Illinois November 8, 2002)

But they did do it again.

Six years after his speech, Governor Bernanke presided over another catastrophe in the financial markets. Cheap credit and ‘monopoly’ money had blown bubbles in the debt markets that popped.

Alan Greenspan was Chairman of the Federal Reserve at the time Bernanke made the above statement. When testifying before Congress after the credit implosion of 2007-08 and after he had been replaced by Mr. Bernanke, Greenspan had this to say:

“I discovered a flaw in the model that I perceived is the critical functioning structure that defines how the world works. I had been going for 40 years with considerable evidence that it was working exceptionally well.”

And lets not forget the Fed induced bubble surrounding stocks in the late nineties which was pricked in early 2000. Greenspan was at the helm then, too.

But is this really any wonder? What can you expect after reading what Danielle DiMartino Booth says…

“The economists were satisfied parsing backward-looking data to predict future events using their mathematical models. Financial data in real time were useless to them until it had been “seasonally adjusted,” codified, and extruded into charts. Fed employees had no interest in financial news.”

IT WILL BE MUCH WORSE NEXT TIME

Similar events today would bring about a price collapse in all markets as well as usher in deflation and a full-scale depression. All of this would be resisted on every front by government and the Federal Reserve.

They would launch an all-out financial war (and maybe another real war, too) by opening the money and credit spigots full force in a futile attempt to reverse the credit implosion and negative price action of all assets.

The depression would also last much longer than needed. And the price declines which are necessary to correct the excesses of the past and cleanse the system would be countered every step of the way by regulations and programs of dubious value.

The efforts of government would actually worsen things and prolong the suffering; and the results would be much worse than anything we could imagine.

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!

Everything Peaked in 1980 – The Waning Effects Of Inflation

Gold Prices (inflation-adjusted) – 100 Year Historical Chart

historical-gold-prices-100-year-chart-2021-08-09-macrotrends

Crude Oil Prices (inflation-adjusted) – 70 Year Historical Chart

crude-oil-price-history-chart-2021-08-09-macrotrends

Given their unique characteristics and uses, their price patterns are amazingly similar; which is interesting, but not indicative of any correlation.

What is important is that the price of gold today ($1730 oz.), in inflation-adjusted terms, is twenty-five percent less compared to its 1980 peak ($2287 oz.).

Crude oil is considerably less expensive. Its current price of $69 per barrel is cheaper than its inflation-adjusted 1980 peak of $132 per barrel by fifty percent.

Another way to say this is that the cost of oil today is the equivalent of $20 per barrel in 1980 prices.

The silver price also peaked in 1980 and is cheaper today by more than eighty percent in inflation-adjusted terms. Even in nominal terms, silver is cheaper by more than fifty percent ($23.00 oz compared to $49.00 oz.) compared to its 1980 peak…

Silver Prices (inflation-adjusted) – 100 Year Historical Chart

historical-silver-prices-100-year-chart-2021-08-09-macrotrends

Prices for some commodities, such as wheat and sugar, peaked prior to 1980.

The nominal price of wheat peaked at $12.00 per bushel in March 2008. That was nearly double the nominal wheat price peak of $6.32 per bushel in February 1974.

However, in inflation-adjusted terms, it was only slightly more than one-third of its 1974 peak. At $7.19 per bushel currently, wheat is nearly eighty percent less expensive than in 1974.

The current sugar price at $.1867 per pound is cheaper by almost seventy percent compared to its nominal price peak of $.60 per pound in 1974; and ninety percent cheaper in inflation-adjusted terms.

Recent talk about “soaring prices” and “hyperinflation” is somewhat overdone. For more than forty years the prices of most items have declined in inflation-adjusted terms.

DECLINES IN ECONOMIC ACTIVITIY

Also there are declines in specific areas of economic activity. See the charts below for durable goods orders, housing starts and capacity utilization rates…

Durable Goods Orders – Historical Chart

 

durable-goods-orders-historical-chart-2021-08-09-macrotrends

Housing Starts – Historical Chart

housing-starts-historical-chart-2021-08-09-macrotrends

Capacity Utilization Rate – 50 Year Historical Chart

capacity-utilization-rate-historical-chart-2021-08-09-macrotrends

The trends in lower prices and weaker economic activity are the effects of inflation that is losing its intended impact.

Regardless of the increasing amounts of inflation (money and credit) that the Federal Reserve creates, it cannot predict or depend on the intended stimulus effect that was apparent at times in the past.

This is because the effects of cumulative inflation result in increasing volatility and unintended consequences.

The obvious sign of inflation’s effects is the loss of purchasing power in the currency (US dollar); but the elements of volatility and unpredictability counter the intended stimulus.

MORE INFLATION? NO CHOICE IN THE MATTER

Over time, more and more inflation yields less and less of the intended results. This is much like the pattern experienced during drug addiction. We have reached the point where the Fed cannot tell how much inflation is ‘necessary’ and how much is too much.

Is a certain amount of inflation really ‘necessary’? It is if you want to maintain relative stability and avoid the pain of collapse and economic depression.

Unfortunately, following that prescription means committing to endless inflation. Ironically, the pain of withdrawal from our inflationary addiction is necessary in order to heal. The choice is between getting better, which includes painful withdrawal symptoms of credit collapse, deflation and economic depression; OR getting sicker and possibly dying.

At this point in time, a decision might be thrust upon us which is triggered by one or more of those unintended consequences.

STRAIGHT FROM THE HORSE’S MOUTH

Here is another chart which shows very clearly how the effects of inflation are waning…

fredgraph

(What is FRED? Short for Federal Reserve Economic Data, FRED is an online database consisting of hundreds of thousands of economic data time series from scores of national, international, public, and private sources. FRED, created and maintained by the Research Department at the Federal Reserve Bank of St. Louis)

As can be seen on the chart, the effects of inflation peaked in 1980.

THE END IS NIGH

As far as what is meant by Chairman Powell and Treasury Secretary Yellen regarding the term “transitory” as it has been applied to current inflation rates, I believe they are both correct.

More important is the reasoning and motivation behind their use of the term.

The Fed and the Treasury (Yellen) know very well that the biggest risk factor today is not hyperinflation (see Two Reasons Hyperinflation Is Unlikely). Rather, it is a lack of liquidity.

The lack of liquidity could easily morph into credit collapse and economic depression. These things are the natural end results of over a century of inflation.

Use of the term transitory in referring to inflation deflects attention away from the threat of a deflationary collapse. If one is truly worried about whether or not current higher prices for goods and services is temporary, then one won’t be as likely to ask other more embarrassing questions.

One of those possible questions concerns whether the Fed really has any control over things. They don’t. Remember, the effects of inflation are unpredictable.

Also, Fed efforts for the past two decades have been primarily focused on putting out fires and patching leaky boats.

All decisions and policies put forward by the Fed might better be characterized as window dressing. The patient is on life support and there isn’t much to do except wait for the eventual end.

Kelsey Williams is the author of two books: $100 Silver Has Come And Gone and $100 Silver Has Come And Gone

Waiting On Silver

However, an examination of those fundamentals reveals a different picture. That picture is inconsistent with the call for higher silver prices.

SILVER SUPPLY & DEMAND, RATIOS

The supply deficits (gaps in consumption over production) have been talked about for decades. In the 1960s and 1970s they were the principal fundamental justification in the case for higher silver prices.

Throughout the twentieth century, industrial use of silver increased to the point where the consumption of silver eventually exceeded new production. This is the start of the consumption/production gap to which people refer. The government then became a willing seller in order to keep the price down. The specific purpose was to keep the price from rising above $1.29 per ounce. This is the level at which the amount of silver in a silver dollar (not Silver Eagles) is worth exactly $1.00.

The huge price gains for silver that occurred in the 1970s were largely attributable to years of price suppression prior to that. Those years of price suppression, though, were preceded by decades of price support.

Neither price suppression, nor support, are significant issues at this time. The primary imbalance in supply and demand was corrected in the 1970s. If it hadn’t been, the silver price might be much higher than it is.

Expectations for a return to a 16-1 gold/silver ratio will go unfulfilled. The gold-to-silver ratio that existed one hundred fifty years ago was mostly the result of political influence and appeasement. There is no fundamental reason which justifies any particular ratio between gold and silver. (see Gold-Silver Ratio: Debunking The Myth)

Gold to Silver Ratio – 100 Year Historical Chart

gold-to-silver-ratio-2021-07-25-macrotrends

As can be seen in the chart above, the gold-to-silver ratio continues to widen in favor of gold.

SILVER FUNDAMENTALS

Silver is an industrial commodity. Its primary demand is driven by – and its price is determined by – industrial consumption. Any role for silver as a monetary hedge is secondary. This is true even in light of the significant increase in the amount of silver used in minting bullion bars and coins; particularly Silver Eagles.

The fundamentals simply do not support the bullish expectations for silver. Also, there are fundamentals that make silver vulnerable to a big price drop.

Deflation is a more likely near-term possibility than hyperinflation. True deflation results in a decrease in the general price level of goods and services.

As an industrial commodity, the silver price would reflect the full brunt of deflation’s effects. The depression-era low for silver occurred in late 1932 at $.28 oz. This low coincided with the stock market’s low.

Something similar happened in March-April 2020, when both silver and stocks declined by thirty-five percent.

Another possibility is that we might continue for several more years with relative prosperity and disinflation. This would not stop further price declines for silver.

SOME HISTORICAL PERSPECTIVE

After it peaked at $48.00 per ounce in 1980, silver’s price declined ninety-two percent over the next thirteen years. It reached a low of $3.57 oz. (February 1993) during the boom years of the 1990s.

It has been ten years since silver last peaked at close to $50.00 oz. At the current price of approximately $25.00 oz., silver is cheaper by one-half. This is shown on the chart (source) below…

Silver Prices – 10 Year Historical Chart

historical-silver-prices-100-year-chart-2021-07-25-macrotrends-2

Given that, does it matter much that silver has doubled in the past year. All of that increase is just a matter of recovering some lost ground.

Historically speaking, most of the reasons people give in support of dramatically higher silver prices, lose credibility when one looks at the facts.

CONCLUSION

Silver is ineffective as a monetary hedge because it is not a store of value. Silver would need to be over $100.00 per ounce right now to roughly approximate what gold’s current price of $1800 oz. reflects regarding the loss in purchasing power of the US dollar over the past century.

It is not remotely close to that number and there is no historical precedent to expect the gap between gold and silver to narrow in silver’s favor. As long as the US dollar continues to lose purchasing power, the gap between gold and silver prices will continue to widen in favor of gold.

In addition, on the few occasions when silver has increased in price dramatically, it has given up most or all of the gains in short order.

In other words, there is likely more downside ahead for silver’s price. And it could be quite significant.

(also see $100 Silver Has Come And Gone)

Kelsey Williams is the author of two books: $100 Silver Has Come And Gone and $100 Silver Has Come And Gone

What’s Next For Gold Is Always About The US Dollar

Not coincidentally, but in direct reflection of the dollar’s loss in purchasing power, the price of gold has multiplied one hundredfold from $20.67 oz to $2060 oz as of August 2020.

The chart below shows the ever-increasing price of gold over the past century…

GOLD PRICE LINKED TO US DOLLAR

When President Nixon suspended convertibility of the US dollar into gold in 1971, his action ushered in a decade-long period of US dollar weakness and rejection.

The effects of inflation created over the previous four decades, initially in an attempt to extricate us from the economic depression of the thirties, then to fund the country’s expenses relative to its involvement in WWII, etc., came roaring to life in the form of higher prices for all goods and services.

The rapid rise in the prices for goods and services in the United States was a reflection of the loss in purchasing power of the US dollar. Consequently, the dollar price of gold moved considerably higher and peaked intraday in January 1980 at $843 oz. The average monthly price for gold in January 1980 was $677 oz, which is reflected on the chart above.

The 1970s were a catch-up period for the price of gold relative to the US dollar’s loss in purchasing power. The $677 price for gold indicated that the US dollar had declined by nearly ninety-seven percent at that point since the origin of the Federal Reserve.

After that, the Fed found religion and managed to temporarily halt the dollar’s decline. A new period of prosperity and economic growth buoyed the dollar.

The effects of inflation were surprisingly mild for the next two decades. A stronger dollar showed up in lower gold prices. By 1999, the gold price had fallen to $252 oz., a decline of seventy percent.

Beginning in 2001, the US dollar began a significant decline on world markets lasting until 2008. During that time the price of gold rose from $256 oz to as high as $1023 oz.

A secondary low for the US dollar occurred in 2011. This was closely concurrent with a peak in gold’s price at $1896 oz.

Again, as in the period following gold’s price peak in 1980, the US dollar began a multi-year period of strength and stability. The muted effects of inflation between 2011 and 2016 resulted in a lower gold price.

The price of gold declined from $1896 oz. to $1049 oz. during that period, a loss of forty-five percent.

The price of gold since then has risen to $2060 oz. and subsequently declined back to $1675 oz. Meanwhile, the US dollar has neither gotten much weaker nor strengthened to any measurable degree.

INFLATION-ADJUSTED GOLD PRICES

The chart below illustrates the link between gold’s price and the US dollar. It is similar to the previous chart except that the one below allows for the effects of inflation.

There are five major turning points for gold’s price that are reflected on the chart. All five turning points (1933, 1971, 1980, 2000, 2011) coincided with changes in the US dollar.

Gold is priced in US dollars and since the US dollar is in a state of perpetual decline, the US dollar price of gold will continue to rise over time, as is shown in the first chart.

There are periodic changes in US dollar valuations and these changes can last for years (1980-2000; 2011-2016). During such periods the price of gold can and does decline considerably.

Gold’s value is not determined by world events, political turmoil, or industrial demand. The only thing that you need to know in order to understand and appreciate gold for what it is, is to know and understand what is happening to the US dollar.

The US dollar is in a constant state of deterioration, punctuated with periods of temporary strength and stability. The dollar price of gold reflects the deterioration by moving higher over time, usually after the fact.

Gold is not forward-looking. The higher price of gold in dollars is a reflection of the loss in purchasing power that has already occurred.

GOLD – WHAT TO EXPECT NEXT

As far as gold is concerned, the only thing that will take its price higher is further lasting deterioration in the actual purchasing power of the US dollar.

  • If you think that a collapse in the US dollar is imminent, and that runaway inflation is just around the corner, then load up on gold. But don’t expect to get rich if you are correct. At best, all you can expect is to maintain your current level of purchasing power for whatever wealth you have already accumulated.
  • If we have a period of relative tranquility and economic prosperity with mild inflation effects, then gold’s price could languish or decline for many years.
  • A financial collapse with credit defaults would likely usher in a long-lasting economic depression and deflation. The deflation would result in price declines for all assets of anywhere from 60-90 percent or more. And, yes, that includes gold.

CONCLUSION

The value of gold is constant. Its price changes according to changes in actual purchasing power of the US dollar.

Higher gold prices usually come after longer periods of time when the cumulative effects of previous inflation become more apparent.

If you want to know and understand what is happening to gold’s price, then you need to know and understand what is happening to the US dollar.

Changes in the price of gold do not tell us anything about gold; they tell us what has happened to the US dollar.

(also see Gold Price – $700 or $7000)

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!

Higher Gold Price Vs. Inflation Expectations

That sounds logical, but it is not that simple.

There is a relationship between higher gold prices and inflation, but the two are not directly related. The confusion results from a misunderstanding about inflation and its effects.

Inflation is the intentional debasement of money by government and central banks. The inflation is accomplished by the expansion of the supply of money and credit. All governments inflate and destroy their own currencies.

The debasement of money, i.e., inflation, leads to a cheapening of the value of money in circulation. This results in a loss in purchasing power which translates over time into higher prices for most goods and services.

The higher prices are the effects of inflation. Those effects are volatile and unpredictable.

This makes it difficult to rely on simple financial and economic statistics, complicates ordinary business decisions, distorts financial planning projections, and skews the economic cycle.

The skewing of the economic cycle results from the Fed’s efforts to mange the stages of the economic cycle in an attempt to avoid recessions and depressions.

They do not do a good job of it. In fact, the Federal Reserve tends to cause the very recessions and depressions they claim to be trying to avoid.

UNPREDICTABLE EFFECTS OF INFLATION

Inflation is a tool used by central banks to create conditions that allow for all banks to lend money and finance activities of particular interest to them. Whatever the situation or cause, the money center banks are there to lend money, and profit from it continuously.

Right now people are expecting inflation to get a lot worse because of the Fed’s latest response to financial and economic catastrophe. The inflation, however, has already happened.

The staggering amounts of money and credit expansion in response to last year’s Covid-19 related economic shutdowns, and the subsequent price inflation of financial assets, have some fervently decreeing an imminent dollar collapse and all that that implies.

What most are expecting are much higher prices; maybe even to the extent of what is called runaway inflation, or hyperinflation. Again, those higher prices are the effects of inflation which has already been created.

We said earlier that the effects of inflation are volatile and unpredictable, which is true. That is due in large part to the subjective judgement involved.

Small business owners, large corporations, laborers, hairdressers, restaurant owners, etc., all make subjective determinations about how much to charge for the goods and services we all buy and use.

Investors allow for the effects of inflation when making decisions regarding the purchase and sale of securities, real estate, etc.

In other words, the US dollar’s current level of purchasing power; its standing in world markets, and its degree of acceptance in domestic and international markets are the result of billions of individual choices and decisions that are subjective in nature and always changing.

CREDIT COLLAPSE AND DEFLATION

Now throw into the mix that for several decades, the inflation created by the Fed is losing its intended effect. Even the Fed seemed baffled by the lack of impetus after their actions to revive financial markets and restore economic growth just over a decade ago. (see The Fed’s 2% Inflation Target Is Pointless)

Whatever else some say about the US dollar, whatever are the expectations of certain writers and investors, the US dollar is NOT falling apart. It is not now, nor for the past decade, shown the weakness that some have expected and predicted.

A bigger, more ominous risk is the likely possibility of another credit collapse accompanied by full-scale depression and deflation. This is the primary fear of the Federal Reserve and other central banks.

Events and conditions such as these are exactly the opposite of those which correlate with “much higher inflation and much higher gold prices.”

What this means is that we will need to see renewed, lasting, significant weakness in the US dollar, manifest in the form of much higher prices for everything we buy and sell, IF gold prices are going to move higher to a degree that matches the fantasies of some investors and advisors.

(also see The Federal Reserve And Long Term Debt – Warning!)

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!

Two Reasons Hyperinflation Is Not Likely

The effects of inflation show up in the form of higher prices for all goods and services.

Hyperinflation is defined as “out-of-control general price increases in an economy, …typically measuring more than 50% per month.” (source)

There are two specific reasons why hyperinflation re: out of control general price increases for all goods and services, possible US dollar collapse, etc., is unlikely.

REASON NO. 1) FED INFLATION IS LOSING ITS INTENDED EFFECT

For the past century, the Federal Reserve Bank of the United States has been debasing the US dollar by continually expanding the supply of money and credit.

The effects of that inflation are represented by a loss in purchasing power in the US dollar of ninety-nine percent.

The inflation that is created by governments and central banks is intentional and ongoing. The Federal Reserve and other central banks expand the supply of money and credit so that member banks can lend money perpetually.

Problems arise when governments and central banks cannot keep the effects of inflation in check. Historic examples of hyperinflation are France in 1790s and the Weimar Republic (Germany) in the 1920s.

A different (deflation rather than hyperinflation) example of a central bank being unable to manage the effects of its own inflation is the Great Depression in the United States during the 1930s.

Here is a chart (source) that shows annual CPI rates dating back to 1914…

Note that the chart begins with the year 1914, one year after the inception of the Federal Reserve. A cluster of double digit increases (green bars) in consumer prices ends in 1919.

What history refers to as the Roaring Twenties was ushered in by a collapse in commodity prices and an economic depression so severe that it lasted for almost two decades. Only in the cities and for the wealthiest people were the effects seemingly non-existent.

The cluster of red bars reflects the extent of price deflation that occurred during the 1920s and 1930s.

In 1941, the year the United States entered World War II, the CPI rate shot up to 10% and stayed at relatively higher levels for another decade.

Then in the mid-1950s, the CPI began a 25-year run of increasingly higher rates, peaking in 1979-80 at 13.29% and 12.52%; at that time the highest rates in more than thirty years.

Since 1980, CPI rates have declined steadily. Recent upticks notwithstanding, the CPI rate been trending down for more than forty years.

The last double-digit rates of increase for the CPI occurred in 1979 and 1980. Also, the average annual rate of inflation as measured by the CPI has declined in every decade since the 1970s.

Furthermore, the actual annual CPI rate has been below 4% every year since 1990 except 2007, when it came in at 4.08%.

This seems somewhat incongruous in light of the fact that the biggest and most brazen money creation by the Federal Reserve has come in the past two decades.

It is not so much important as to why this is occurring. What is important is that it is occurring and that the effects are a century old in the making.

Now think back a few years to the attempts by Fed officials to “talk up” higher inflation rates post 2008-2010. (see The Fed’s 2% Inflation Target Is Pointless)

And, remember how more than just a few people expected hyperinflation and much higher gold prices after 2011?

Regardless of any reasoning, conjecture, and analysis to the contrary, the facts are clear that the effects of inflation are not meeting expectations.

REASON NO. 2) FED INFLATION IS FUELED BY CHEAP CREDIT

In late 18th century France and in early 1920s Germany, inflation was practiced the old-fashioned way – they printed the money into existence.

That led to absurd levels in pricing for various goods and services. This was evidenced by the fact that the price of one loaf of bread in Germany went from 14 marks to 200,000,000,000 (200 billion) marks in just three short years.

Today, most of the money supply expansion by the Fed is digital in nature and credit-based. This accomplishes the inflation creation more conveniently. It has also allowed the Fed to respond to financial and economic crises in a startling fashion.

As a result, the entire world economy is awash in cheap credit. Companies and entire industries function on cheap and easy credit. Most of them would not be able to stay in business otherwise.

Unfortunately, the dependence on cheap credit has increased the vulnerability of our financial system.

When you consider a fractional-reserve based banking system, and retail sectors such as housing, automobiles, student loans, small businesses that are all funded with credit, the numbers are mind-boggling.

The situation is much worse when factoring in derivative investments that are priced exponentially disproportionate to underlying investments of nominal or token value.

The use of leverage, i.e., borrowed money, dwarfs any underlying value, whether it be a house, a car, ETF, uncovered options writing, junk bonds, etc.

There is a historic precedent for financial collapse following an abundance of easy credit by the Federal Reserve. A prominent example is the stock market crash in October 1929.

See the chart (source) below…

From its peak in August 1929 at 380 to its nadir in July 1932 at 44, the Dow Jones Industrial Average lost almost ninety percent. Most individual investors lost everything.

Buying on margin became so popular that by the late 1920s, “ninety percent of the purchase price of the stock was being made with borrowed money.” Not only that … the U.S. economy had come to depend on that activity. Before the crash, nearly forty cents of every dollar loaned in America was used to buy stocks.” – www.awesomestories.com – Oct 24, 2015

CONCLUSION

Extensive use of credit for speculative ventures is considered normal today. Any lessons learned after the events of a century ago have been mostly forgotten. For those who care to know.

  1. The risk of a multi-asset price collapse is greater today than any risks associated with hyperinflation.
  2. Historically speaking, long periods of entrenched inflation always end in economic collapse.
  3. An economic collapse can happen either with (Germany 1918-23), or without (United States 1930s) experiencing hyperinflation.

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!

$4000 Gold – Insurance, A Hedge, An Investment

GOLD AS INSURANCE

There is a seemingly plausible argument for calling gold a hedge or insurance given volatile conditions in our society today. But the logic leading to those classifications ignores the single factor that affects the price of gold. That single factor is the actual loss in purchasing power of the paper money substitute in which gold is priced.

Historic instances of extreme civil unrest, political instability and insurrection are most times associated with amplified concerns regarding the local fiat currency. A higher price for gold is a reflection of the cumulative deterioration of the currency in which it is priced.

It is especially important to remember this today. If you wake up some morning this fall and find that gold is priced at $4000 oz., it can only happen after the US dollar has lost additional purchasing power of fifty percent.

In other words, by the time gold is at $4000 oz., it will cost you twice as much for everything you need. You will need $100,000 per year to pay for what costs you $50,000 per year now.

This does not mean that further increases in the supply of money and credit are guarantees that the dollar will collapse or that its purchasing power will disappear overnight. (see Gold Price Is Not Correlated To Money Supply)

GOLD AS A HEDGE

As far as being a “hedge against inflation”, some clarification is in order.

Inflation is the debasement of money by government.
All governments (and central banks) inflate and destroy their own currencies.
What most people mean by the term ‘inflation’ are really the effects of inflation. Those effects are volatile and unpredictable. (People expected hyperinflation in the late 1970s and early 1980s. It didn’t happen. They expected it again after 2011. It didn’t happen. Similar expectations are voiced daily about the prospects for hyperinflation now. It is less likely now than before.)

Some say inflation is back and that it has returned with a vengeance; but inflation never went away. It is ongoing, continuous, and deliberate. (see Inflation – What It Is, What It Isn’t, And Who’s Responsible For It)

Gold acts as a restraint on government’s propensity to inflate its way to prosperity; or a central bank’s desire to create money in perpetuity that it can lend to all comers.

Gold is not immune to inflation, though. (See  Mansa Musa, Gold, And Inflation)

GOLD AS AN INVESTMENT

When gold is characterized as an investment, the incorrect assumption leads to unexpected results regardless of the logic. If the basic premise is incorrect, even the best, most technically perfect logic will not lead to results that are consistent.

If we think of gold as an investment, then it’s not too hard to see why some might refer to it as a barbarous relic. As indicated in the chart (source) below, gold’s price performance when viewed as an investment is not strong enough to merit the consideration of most investors and financial advisors…

Gold Price vs Stock Market – 100 Year Chart

gold-price-vs-stock-market-100-year-chart-2021-06-04-macrotrends

It is hard to argue favorably about gold’s merit as an investment when stocks have outperformed it by a margin of 6 to 1. That gap continues to widen dramatically in favor of stocks.

There is potential, however, for a more favorable view of gold as an investment when we look at the following chart…

Gold Price vs Stock Market – 20 Year Chart

gold-price-vs-stock-market-100-year-chart-2021-06-04-macrotrends-2

As can be seen, it has been more profitable to hold gold rather than stocks for the duration of the 21st century. But that is somewhat misleading since the ratio turned in favor of stocks again after gold peaked in 2011. See the chart below…

Gold Price vs Stock Market – 10 Year Chart

gold-price-vs-stock-market-100-year-chart-2021-06-04-macrotrends-3

Quite plainly, stocks have reasserted their deserved role as a preferred long-term, buy and hold investment. Over the past decade, stocks have outperformed gold by a 9 to 1 margin.

That really is as it should be; at least insofar as gold is concerned. That is because gold is not an investment. It is real money; original money.

Holding gold rather than stocks is similar in theory to selling stocks and holding cash. Cash is preferable for shorter periods. Gold is a better option for longer periods because its rising price will compensate for the continuous decline in the US dollar.

Don’t impute any value to holding gold other than its use as real money. If you want the potential investment returns of stocks, then buy stocks.

The use of strategy and timing involving gold does not change its characteristics. And a profitable trade in gold is not indicative of any special considerations regarding gold’s investment value. There are none. (see Gold’s Not An Investment – You Won’t Get Rich).

SUMMARY AND CONCLUSION

  1. Gold is real money – original money. Gold’s higher price over time reflects the cumulative loss in purchasing power of the US dollar.
  2. Gold is not an investment and it is not forward-looking. Higher gold prices at this point in time will come only after a further, significant loss in US dollar purchasing power is evident in fact; not in theory. Sometimes that takes several years, maybe decades. (think 1980 -2008; and 2011-2020)
  3. Gold is not a hedge against inflation. Inflation is the intentional debasement of fiat currencies by governments and central banks to suit their own purposes. Owning gold helps to compensate for the loss of  purchasing power which occurs as a result of that inflation.
  4. If a complete breakdown in the US dollar occurs, the price of gold in dollars will skyrocket. So will the price of everything else we buy and sell. If you own gold before a dollar  collapse, then your gold will maintain its purchasing power. The higher dollar price per ounce will offset the higher prices you pay for everything else – just to survive.

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!

Are Silver Prices Really Cheap; And Does It Matter?

Whether it is a deficit in new production of silver or the gold-to-silver ratio, there is always something to talk about; so let’s talk.

Below is a chart (source) of silver prices for the past century…

Silver Prices – 100 Year Historical Chart

silverchartnewarticle

The chart is plotted using average closing prices for spot silver so the peak shown in 1980 is $36 oz., which is an average of closing prices for the month of February 1980. The peak intraday price was $49 oz. in January 1980.

In either case, with spot silver currently under $28 oz., silver is definitely cheaper than it was in early 1980.

That does not, however, make silver a bargain at its current price. The actual average price for the entire year 1980 was $20.98 oz. With the average closing price for 2021 at more than $26 oz., then silver is more costly by an average of $5 oz., or twenty-four percent.

The two parallel lines identify a price zone for silver between $20 – $40 oz. The total time that silver prices were actually within that range or higher amounts to less than five years.

Since the chart includes a total of 106 years, that means silver has traded at prices below $20 oz. for more than ninety-five percent of the past century.

Conversely, we might say that silver at $27 oz. is not cheap. In fact, after adding the exorbitant premiums that accompany the purchase of physical silver (Silver Eagles, junk silver coins, etc.), silver is quite expensive; more than almost any other time shown on the chart.

However, a realistic assessment of silver prices is not complete unless we consider inflation-adjusted prices. Here is the same chart as above, but with silver prices adjusted for inflation…

Silver Prices – 100 Year Historical Chart (inflation-adjusted)

silverchartnewarticle2

In the chart above, the same parallel lines of $20 and $40 are shown. On an inflation-adjusted basis, most of the price history for silver is still under $20 oz.

An imaginary line at $30 oz. compares more closely to the $20 oz. in the first chart and reinforces how significant the recent $30 oz. stopping point is in silver’s price history.

Even on an inflation-adjusted basis, silver is still more expensive than almost any other time in the past one hundred years. After adding premiums for actual physical silver in various forms, the acquisition price approaches $35-40 oz.

Some will argue that expectant price increases for silver will make any of this type of analysis unnecessary, or moot. However, the reasoning behind those expectations are more grounded in fantasy than actual fundamental fact.

SILVER SUPPLY-DEMAND GAP

One of the so-called fundamentals that seem to attract unwarranted attention is the supply-demand gap in production (mining) of silver relative to consumption.

“The gap in consumption over production that existed in the late sixties and early seventies was one of several things that contributed to much higher silver prices. But when all is said and done, and after decades of ‘fundamental’ arguments about such an imbalance, silver has failed to show any further signs of a need for revaluation in price because of consumption/production gaps, past or current.” (see No Silver Lining Here)

GOLD-TO-SILVER RATIO

Another favorite argument trumpeted in silver’s behalf is the reliance on a return to gold-to-silver ratio of 16:1. The ratio currently stands at 67 and was as high as 120 last year. Below is a chart of the ratio…

gold-to-silver-ratio-2021-05-21-macrotrends

Silver investors who are depending on a declining gold-to-silver ratio are betting that silver will outperform gold going forward. But, if anything, the chart (see link above) shows just the opposite. For more than fifty years, the ratio has held stubbornly above a rising trend line taking it to much higher levels.

In the Mint Act of 1792, the U.S. government arbitrarily chose a 16:1 ratio of gold prices to silver prices. The actual prices were set at $20.67 per ounce for gold and $1.29 per ounce for silver.

“There is no fundamental reason which justifies any particular ratio between gold and silver.” (see Gold-Silver Ratio: Debunking The Myth and Gold-Silver Ratio And Correlation)

SILVER – WHAT NOT TO EXPECT

SILVER – WHAT NOT TO EXPECT

  1. Don’t expect silver to outperform gold. Gold is real money and its higher price reflects the actual loss in purchasing power of the US dollar. As long as the dollar continues to lose purchasing power, the price of gold will continue to move higher relative to silver.
  2. Don’t expect silver’s price to rise if stocks collapse. A collapse in stock prices more likely would usher in hard times economically; maybe recession or depression. Silver is primarily an industrial commodity, so it is very price sensitive to economic slowdowns. When stocks fell at the onset of Covid-inspired closures and shutdowns last year, the price of silver fell by a larger percentage, before moving higher along with most everything else.
  3. Don’t expect silver to rise above $30 oz. and stay there. That would be a refutation of everything we know about silver historically.
    Don’t expect a special circumstance or event to void any of the above.

SILVER – WHAT SHOULD YOU DO?

What you do depends on your reasons for owning silver.

  1. If you own silver and are expecting large-scale fantasy price increases, reread this article and the other ones referenced.
  2. If you got in early on the latest upswing and have some nice profits, take them.
  3. If you own some silver coins against the possibility of a collapse in the US dollar, keep them and go about your business.
  4. If you have larger amounts of wealth you want to protect, consider gold. It is a much better choice.

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!

A Fair Price For Gold – $1000 Or $2000?

We know that gold is currently priced at more than $1800 per ounce; so the value of gold today is what we can buy with one thousand eight hundred dollars.

But is $1800 dollars per ounce realistic? Does it represent fair value? Are there reasons why we might expect that price to rise or decline to any substantial degree that would influence our choice to hold money in gold vs. US dollars?

Let’s go back to a time when both gold and the US dollar circulated as money, were freely convertible, and were equal in value.

A century ago, both gold and US dollars were legal tender, and interchangeable. Either was convertible into the other at a fixed price. A one ounce (.97 ounces) gold coin was equal to twenty US Dollars and vice-versa (the official gold price was $20.67 per ounce, which multiplied by .97 ounce of gold in a gold coin equals $20.00).

With the current price of gold at $1800, some would be tempted to say that the value of gold over the past one hundred years has increased by eighty-six hundred percent. But that would mean that one ounce of gold today will buy eighty seven times as much as it would a hundred years ago. We know that is not the case.

The specifics are two-fold: 1) Gold gained in price by eight-six hundred percent relative to the US dollar. 2) The US dollar declined by more than ninety-eight percent relative to gold.

GOLD AND US DOLLAR PURCHASING POWER

Now we need to know how both gold and the U.S. dollar fared in absolute terms regarding purchasing power. You can read about that in my article A Loaf Of Bread, A Gallon Of Gas, An Ounce Of Gold

The results are clear. Gold has maintained its value, and even increased its purchasing power in absolute terms, over the century-long period under consideration.

What we don’t know is the extent to which the current price of $1800 per ounce reflects accurately the effects of inflation that have occurred to this point. More specifically, how much purchasing power has the US dollar lost? Is it ninety-eight percent or less; ninety-nine percent or more?

A gold price at $1800 indicates a specific loss of 98.8% in US dollar purchasing power. A ninety-nine percent decline in the value of the US dollar translates to a gold price of over $2000 per ounce. If the decline is closer to ninety-eight percent, then the gold price should be closer to $1,000 per ounce.

In August 2011, gold peaked at almost $1900.00 per ounce. That indicates a loss in purchasing power of the U.S. dollar close to ninety-nine percent (98.9%).

Nearly four and one-half years later, in January 2016, gold traded as low as $1040.00 per ounce. That price indicates a decline in U.S. dollar purchasing power closer to ninety-eight percent. A ninety-eight percent decline in U.S. dollar value equates to a fifty fold increase in the gold price (100 percent minus 98 percent = 2 percent; 100 percent divided by 2 percent = 50; $20.67 per ounce times 50 = $1033.50 per ounce).

Last August (2020) the gold price peaked at $2060. That indicates a loss in purchasing power of the U.S. dollar at ninety-nine percent, which translates to a one-hundred fold increase in the gold price (100 percent minus 99 percent = 1 percent; 100 percent divided by 1 percent = 100; $20.67 per ounce times 100 = $2067.00 per ounce).

CONCLUSIONS:

  1. The US dollar has lost between ninety-eight and ninety-nine percent of its purchasing power over the past century.
  2. Gold is realistically priced at anywhere between $1000 and $2000 per ounce.
  3. Further increases in gold’s price will come only after further actual and apparent losses in US dollar purchasing power.

Expectations for further deterioration in the US dollar will not lead to further increases in gold’s price. That is because the price of gold in dollars represents the actual loss in purchasing power that has already occurred.

In other words, gold is approaching its upper boundary ($2060)) based on actual accrued losses in US dollar purchasing power (99%).

Items for consideration that could have a substantial impact on the US dollar include 1) new and unexpected actions by the Federal Reserve; 2) a clearer picture of the enormity of the Fed’s balance sheet; 3) accelerated, delayed effects of inflation previously created by the Fed; 4) a credit implosion; 5) Fed’s reaction to a credit implosion; 6) Deflation and Depression.

Some items above can affect the value of the US dollar positively, which is why you need to keep your eye on the dollar, and not the specific event.

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!

Overheated Economies Don’ t Cause Inflation

Later that same day, she said this…

“It’s not something I’m predicting or recommending. If anybody appreciates the independence of the Fed, I think that person is me, and I note that the Fed can be counted on to do whatever is necessary to achieve their dual mandate objectives.”

Also last week, we heard from the Federal Reserve which released the following statements on Thursday, May 6, 2021…

  • Rising asset prices are posing increasing threats to the financial system, the Federal Reserve warned in a report Thursday.
  • “Asset prices may be vulnerable to significant declines should risk appetite fall,” the central bank said.

Before we can understand how to interpret these statements and any possible conflictions, there are four key topics that need to be explained: inflation, the Federal Reserve, interest rates, and the economy.

INFLATION IS CAUSED BY GOVERNMENT

Inflation is the debasement of money by government and central banks. The debasement is accomplished by continually expanding the supply of money and credit. Also, the inflation created by the Federal Reserve is intentional.

The Federal Reserve has been expanding the supply of money and credit intentionally for more than one hundred years.

FEDERAL RESERVE IS A BANKER’S BANK

The purpose of the Fed is to provide a structured environment for the creation of money, so that banks can lend money (i.e., a banker’s bank). The expansion of the supply of money and credit (inflation) allows banks to continue to lend money in perpetuity.

The Fed’s inception in 1913 was authorized by Congress with the understanding that the Federal Reserve would try to mange financial activity in such a way as to avoid panics and crashes.

What wasn’t publicly known was that in order to harness political support for the bill authorizing the Fed’s creation, a promise was made to the United States Government that it would always provide whatever money was necessary for the government to fund its operations.

INTEREST RATES AND THE ECONOMY

The effects of inflation are volatile and cannot be quantified in advance, no matter how much we know about money supply growth.

Panics and crashes have become more severe and their damaging economic effects are longer lasting than prior to inception of the Federal Reserve.

In order to induce economic activity that will encourage retail lending and consumer spending, the Fed has resorted to interest rate manipulation.

Artificially low interest rates for the past several decades have fostered an economy dependent on cheap credit. A rise in interest rates to more normal levels would create cataclysmic conditions.

On the other hand, if the Fed continues to maintain artificially low interest rates, they run the risk of overstimulation (think drug overdose).

There is a difference between higher asset prices and economic activity. Higher asset prices themselves are not a cause or symptom (effect) of inflation and they are not indicative of an economy in danger of overheating.

The reason for the high, over-inflated asset prices is the cheap and abundant credit supplied by the Fed.

Sometimes, statements are made that imply a link between growth in our economy and inflation:

“We have to “manage the growth” so the economy doesn’t “grow too quickly” and “trigger higher inflation”.

Statements like this are false and misleading.

POWELL AND YELLEN – TEAM FED PART 2

Ms. Yellen knows all of this, of course; so why the subterfuge?

Her allegiance has not changed. She is still a member of the same team (see Powell And Yellen – Team Fed), but she plays the game at a different position.

Secretary Yellen has said that “interest rates will have to rise somewhat…”.

What she is saying is that rates cannot remain at artificially low levels without expectant, long-term damage.

Chairman Powell has said that as long as interest rates stay low, the valuations are justified. That is not exactly correct…

The reason for the high, over-inflated asset prices is the cheap and abundant credit supplied by the Fed. An abundance of cheap credit does not justify the extreme valuations; but it does explain them.

Taken together, both Chair Powell’s and Treasury Secretary Yellen’s statements, coupled with statements released by the Fed on May 6, 2021, are telling us that something big is about to happen.

A WARNING!

Here is what you need to know…

Both the Federal Reserve and the United States Treasury have warned us that something big is about to happen.

The warnings are an indirect admission that those who are supposedly charged with maintaining the integrity and stability of our financial and economic systems have lost control.

Expect interest rates to rise. Expect asset prices and financial markets to drop.

An asset price crash and credit collapse are likely upon us soon.

(Also see Asset Price Crash Dead Ahead. You can read about the Electronic Communications Network here.)

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!