Latest Gold Charts – Not Pretty

Latest Gold Charts

When the gold price peaked at $2058 oz. in August 2020 it reflected a full ninety-nine percent loss in U.S. dollar purchasing power over the past century. The gold price has not been any higher since then.

The chart (source) below uses monthly average closing prices and shows gold price action for the past five years…

  Gold Prices – 5 Year Historical Chart

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After peaking in the summer of 2020, the gold price has moved mostly within a narrow range of $200 oz. ($1700-1900), or ten percent. Essentially, the price has gone sideways within that range. (see Gold Going Nowhere Slowly)

The picture changes materially when we view the same price action on an inflation-adjusted basis…

Gold Prices (inflation-adjusted) – 5 Year Historical Chart

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In this chart we can see that the effects of inflation have altered the path of gold prices from sideways to down.

When the gold price surged higher earlier this year it stopped short of its previous all-time high, peaking at $2043 oz. on an intraday basis.

In the first chart the peaks in 2020 and 2022 seem to be nearly identical; and so they are, without allowing for the effects of inflation.

Because the effects of inflation have been more pronounced in the past year and one-half, the peak in March 2022 is now $250 oz. lower than the peak in 2020.

The original monthly peak on the first chart at $1971 (price is marked on the chart) is now $2253 in today’s cheaper dollar, nearly $300 more.

Inflation-adjusted Gold Prices – Conclusion

The gold price has been declining in nominal and real (inflation-adjusted) terms since its peak in the summer of 2020. Even if the nominal gold price were static, it would still be declining on an inflation-adjusted basis.

As I said in a previous article (Gold Charts – $1450):

  1. Gold appears to have broken below short and mid-term support.
  2. Slowing of gold price descent could come somewhere between $1500-1600
  3. Longer-term support for gold could come in at $1450-1475 oz.

Expect the gold price to continue lower for an indefinite period of time.

Silver Coin Premiums – Another Collapse?

A lower silver price would generally result in higher percentage premiums because the face value of $1000 represented a ‘floor’ which limited the risk of holding the coins. In other words, the real investment risk was limited to the amount you paid over the $1000 face value.

For example, if the price of silver were to fall to $1.00 oz., the silver content value of the bag would be $715 ($1.00 oz. x 715 ounces) Since the coins were legal tender and still accepted at their face value, though, the full bag of coins retained its face value of $1000.

WILD FLUCTUATIONS IN COIN PREMIUMS

The premiums on junk silver coins has fluctuated wildly over the years. During the 1970s, as concern about inflation and its effects took their toll, the premiums on these coins rose considerably.

Then, something changed. The price of silver rose dramatically and the premiums declined. When silver prices peaked at $49 oz. in January 1980, a $1000 face value bag of US silver coins had a silver content value of $35,000.

The bags of coins, however, were selling at a discount of as much as 10-20 percent. Some of the discount was due to the fact that there was a glut of silver coins put on the market. People were selling anything with silver in it, including coins that had been stashed away for years.

In retrospect, we can see that there was little justification for high premiums on the coins since the face value floor of $1000 didn’t provide any protection with bags selling at $30,000 or more.

The silver price collapse shortly thereafter was so severe and long lasting that interest in the coins faded. The coins were commonly available for their silver content with little or no premium.

MORE COIN PREMIUM VOLATILITY

A couple of decades later, concern about Y2K juiced the market for junk silver coins. Even with the price of silver unchanged in 1999, the premiums on the coins jumped to 50%.

By January 3, 2000, investors were convinced that the risk from Y2K was unwarranted and began selling. They sold junk silver coins throughout the year and into 2001, forcing prices lower until the coins sold at a discount again. By that time, it was cheaper to buy bags of US silver coins than it was to buy 100 oz. bars of silver bullion.

CURRENT SIVER COIN PREMIUMS

Today, retail investors are paying premiums of 40% on junk US silver coins. They have paid higher premiums recently, too, and they apparently are willing to pay pretty much any premium asked in order to own the coins.

The saving grace of buying pre-1965 US silver coins at 40-50% premiums right now is that they seem like a bargain compared to buying freshly-minted US Silver Eagles at a 70% premium.

Shouldn’t it be the other way around?

ANOTHER COLLAPSE IN SILVER COIN PREMIUMS?

As we noted above, there were huge declines in US silver coin premiums in 1980 and, twenty years later, in 2000.

It has been just over twenty years again since the last collapse in silver coin premiums. Will we see another collapse in premiums?

Some will argue that demand for junk US silver coins will always be strong enough to maintain a high premium over bullion bars. Maybe; but that is not necessarily so.

The premium for junk US silver coins rose and collapsed during a period when silver prices were rising dramatically in the late 1970s. Similarly, the premium exploded to the upside, then imploded, when silver prices were basically unchanged in 2000-01.

Possibly it is time for another collapse in the silver coin premium accompanied by a declining silver price.

Whatever the case, there is nothing historical to justify paying 40-50% premiums and more (as much as 100% a couple of years ago) for something which hasn’t been a profitable investment on its own. (see Silver’s Bad Break)

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 Charts – $1450

I will provide commentary after each chart and then summarize at the end of the article.

First chart: Gold Prices – 5 Year Historical Chart

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As is seen in this first chart (above), there is a moderately long and steep uptrend for the gold price dating back four years to 2018. That uptrend line appears to be broken to the downside and occurred during June. Another, steeper uptrend line (not shown) was broken last year in September 2021.

Second chart – Gold Prices – 5 Year Historical Chart (Inflation-adjusted)

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The chart immediately above is similar to the first chart except that all prices have been adjusted to account for the effects of inflation. Hence, the 2018 low price of $1183 oz. is now $1389 oz. in today’s dollars.

As is the case in the first chart, there is an uptrend line of support dating back to the 2018 low which was been broken to the downside. The break occurred in September 2021 and the broken uptrend line is the same as that which was referenced and not shown in the first chart.

For the third chart, we will expand the time horizon to ten years…

Gold Prices – 10 Year Historical Chart

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There is a different, shorter uptrend line on the above chart than in the first two charts. It dates back to the lows for gold in early 2020. Seemingly, that uptrend line has not been broken. However, that is not the case.

Gold prices are currently one hundred dollars per ounce below the ending price point on the chart above ($1817 oz. for June 2022). That is true for all of the charts shown in this article.

Also showing is a possible zone ($1200-1300 oz.) of support for the gold price, depending on how low it goes.

Our fourth and final chart shows a ten year history, too. As before, this chart also shows prices that have been adjusted for the effects of inflation…

Gold Prices – 10 Year Historical Chart (Inflation-adjusted)

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As in chart three, we have included the possible zone of support for gold prices. With the adjustments for inflation, though, that same zone is now $1500-1600 oz; which sounds much better if you are looking for a possible stopping point for the gold price on the downside.

Also in this final chart is a longer line of support dating back to the primary low point in December 2015. Near term, the gold price could drop as low as $1450 oz. without breaking that uptrend line.

SUMMARY

According to the charts we have viewed in this article…

  1. Gold appears to have broken below short and mid-term support.
  2. Possible slowing of gold price descent could come somewhere between $1500-1600 oz.
  3. Longer-term support for gold could come in at $1450-1475 oz.

Any concerns regarding the significance of the three observations above are heightened by the fact that gold is currently one hundred dollars per ounce below the ending price points on all four charts in this article. (also see Understanding Profit Potential In Gold)

(Important note: references to prices on the charts in this article and for future possible price action are based on monthly average closing prices. For example, the intraday high for gold in August 2020 was $2058 oz., but the high for gold based on monthly average closing prices was $1971 oz. in July 2020.)

Asset Price Deflation

Most financial assets benefited enormously from the Fed’s hugely gratuitous efforts to support, sustain and reinflate prices after the 2020 collapse and the ensuing forced economic shutdown.

From the article Gold Market Manipulation And The Federal Reserve

Long-side investors in all assets, including precious metals, ‘benefited’ from the manipulative efforts of the Federal Reserve twelve years ago and again just recently.

The recent recovery in prices for stocks, bonds, oil, gold, and silver has been almost unbelievable. It is literally jaw-dropping…” June 28, 2020

It’s kind of hard to believe that I wrote those words two years ago. A lot has happened since then. It isn’t an understatement to say that whatever superlatives were used to describe the situation at that time probably should have been saved for what came afterward.

For example, gold surged to more than $2000 oz in August 2020, and came close to breaching that level again earlier this year.

Stocks increased more than fifty-five percent by the end of the following year and the widely-followed popular cryptocurrency, Bitcoin increased nine-fold from 9000 to 64,000.

Housing prices seemed to have no upside limits and commodity prices increased by one hundred sixty-six percent.

It’s All Over Now

That was then and this is now. Here are some charts to look at…

GLD (Gold ETF) 1-YEAR

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In less than four months, the gold price has dropped more than sixteen percent.

SPX (S&P 500) 1-Year

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After reaching all-time highs at the end of last year, stock prices have fallen twenty-five percent.

BITCOIN (CME Futures) 1-Year

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The award for most breath-taking price drop so far goes to Bitcoin. That shouldn’t be a surprise to anyone. The most widely-watched cryptocurrency has fallen from 69,355 last November to a recent low of 18,525, a drop of seventy-three percent.

TLT (Long-Term US Treasury) 1-Year

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Long-term US Treasury bonds have dropped by thirty percent since December.

The Most Significant Chart

Any one of the above charts might be considered as important, or significant, but I believe that a variation of the Long-term US Treasury Bond chart is deserving of further consideration…

TLT (Long-Term US Treasury) 3-Year

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The big push to keep interest rates down and reinflate asset prices didn’t do much for bonds.

The reversal point in a multi-decade decline in interest rates came in the summer of 2020 and bond prices have been declining since.

The decline grows in significance because it is larger and longer than in our previous example. From peak prices in August 2020, long-term bond prices have declined by forty percent.

There is additional significance in the fact that the rise in interest rates and corresponding decline in bond prices began while other assets were still in streak mode to the upside.

Investors were looking for the next big thing and the rocket fuel provided by the Fed for everyone’s favorite moonshot seemed to be working.

Rush for the Exits – Conclusion

Then the Fed said that while it would still continue to provide rocket fuel (expanded credit), it was going to raise the price for the fuel by pushing interest rates higher.

Push turned to shove and the bond market fell down the “stairway to heaven”.

The reverberations were felt in surrounding crowded theaters and participants headed for the exits.

That rush for the exits brings us to where we are now. Expect another wave of selling to occur. It will include forced liquidations of leveraged positions in all markets as well as mass selling out of discouragement and despair.

Things are going to get a lot worse. The ultimate fire sale is underway. (also see A Depression For The 21st Century)

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 Stocks Are Worse Than Gold, Better Than Crypto

Gold Stocks Are Worse Than Gold

The original article was published in September 2016. I just finished reading it again and find no reason to edit or modify its contents.

The price of gold peaked in the summer of 2016 – shortly before my article was written and published – at $1357 oz. (monthly average closing price). At that time the GDX (ETF index of gold mining shares) peaked at 30.60.

Both gold and gold mining shares (gold stocks) have been lower and higher since then, and the past six years have seen a fair amount of volatility. Lately, both gold and gold stocks have undergone downside corrections since their most recent highs earlier this year.

So where are we now?

Below are ten-year charts for gold (source) and GDX (source)

Gold Prices – 10 Year Historical Chart

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GDX (Gold Miners ETF)

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Gold is currently priced at $1827 oz. and is up almost thirty-five percent since its peak of $1357 oz. in July 2016.

The GDX index of gold mining shares is currently 29.66. That is a decline of three percent during the same period in which the price of gold increased by more than a third.

Even if the three percent decline in gold stocks could be changed to a three percent increase, the mathematical calculation for comparison purposes would result in a more than ten-fold increase for gold over gold stocks.

More recent performance is similar. Since their respective peaks in 2020, gold is down eleven percent; and GDX is down by thirty-seven percent, more than three times as much as gold.

Finally, from their respective peaks in the past few months, the gold price has declined by eleven percent, whereas, GDX is down by twenty-seven percent.

Gold Stocks To Gold Ratio

Below is another chart (source). This one is the HUI to Gold ratio…

HUI (NYSE Gold Bugs Index) to Gold Ratio

 

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The HUI is an index of various gold mining stocks. The long-term downward trajectory is indicative and confirmative of everything we have said about the underperformance of gold stocks relative to gold.

The down beat goes on for gold stocks, but it’s not a bad as crypto.

Gold Stocks Not As Bad As Bitcoin, But…

Since its high last October (2021) the price of Bitcoin has dropped seventy percent. Currently at $21,068, the price of the new imaginary money was recently as low as $17,708, a decline of seventy-four percent.

The decline of seventy-four percent in the price of Bitcoin is nearly three times as bad as the recent decline in gold stocks.

That does not serve as justification for those who own gold stocks to talk trash about Bitcoin, however.

After peaking in 2011, gold stocks declined by more than eighty percent over the next four and one-half years.

Even though gold stocks as a group are more than double their 2015 lows, they are still priced at less than half of their 2011 peak.

Think of it this way…

Let’s say you invested/owned $100,000 in gold stocks at their peak in 2011. Less than five years later, your investment was worth $20,000; a loss of eighty percent. That is comparable to the loss incurred by holders of Bitcoin since last October.

IF your dogged determination kept you in the game until now, your investment is worth about $45,000. In other words, you still have a loss of $55,000.

For those who argue that someone might have purchased gold stocks at their lows, that’s great! Sell and take your profits.

It doesn’t mean that gold stocks are a good investment. All it means is that you speculated your way to a profitable trade. And, unless you caught the absolute lows, you could have done just as well or better by buying gold.

Barrick Gold Corp.

Sometimes it helps to be more specific, so let’s look at a chart (source) of Barrick Gold Corp

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The most recent trading range for Barrick stock (20-30) is similar to where it was trading between 1993-97.

You could have bought Barrick at $20 per share in 1997, twenty-five years ago.

Or, you could have bought physical gold twenty-five years ago at $350 oz.

If you consider yourself a long-term investor, and you have owned Barrick for the past twenty-five years, you have gone nowhere.

On the other hand, if you had purchased gold instead, your increase is more than five-fold.

Gold Stock Investors – Take Heed

Investing in gold stocks is a losing game. If you are an investor in gold stocks, most of, if not all, the odds are against you.

It is not about patience. Time and fundamentals for investing in gold stocks are negatively oriented.

If you see a price spike upwards, take the money and run! (also see: The Rise And Fall Of Gold Stocks and Gold Stocks Vs. Gold – Not A Good Bet)

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!

If Inflation Is So Bad, How Come It’s Not Worse?

If Inflation Is So Bad…

Recent headlines have many people despairing over inflation.

Just how bad is it? Let’s take a look.

Historical CPI Rates

Below is a chart “showing the annual rate of inflation in the United States as measured by the Consumer Price Index back to 1914″…

Historical Inflation Rate by Year

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The CPI rate of increase for all of 2021 was 7.04 percent. Coming on the heels of 2020’s 1.36 percent and after forty years of historically low CPI rates, 2021 may be viewed by some as “nightmare inflation”. Still, it doesn’t likely justify the headline proclamations that stir up fear and anxiety among the general population.

There are several things to consider before getting worked up about what one reads regarding recent “high inflation”.

First, most of us tend to remember largely what has happened most recently and forget or ignore that which may require a bit of effort to uncover.

When viewing the 2021 CPI rate of 7.04 percent in the context of longer-term historical rates, the number doesn’t seem quite so extreme.

It is true that the spike higher in 2021 was a five-fold increase over 2020; but that is not the whole story.

Part of the reason for the jump in prices last year has to do with supply chain disruptions associated with reopening of the economy after being shutdown for a year or more.

Supply chain disruptions can cause an imbalance in supply and demand. The resulting effect on prices has nothing to do with inflation. (see Simple Facts About Inflation)

Inflation Fears in Late 1980s

Some additional perspective helps, too. After peaking at approximately 13 percent in 1979-80, the CPI rate fell to a low of 1.1 percent in 1986.

The next three years saw increases of 4.43, 4.42, and 4.65 percent. Then, in 1990, the rate jumped to 6.11 percent. Of course, the cries of “high inflation is back” were prevalent then, too.

Nevertheless, the CPI rate dropped in half the very next year to 3.06 percent and ushered in thirty years of historically low CPI rates.

Conclusion

In all cases where extreme increases in the CPI rate are apparent, they were followed by years (decades) of lower rates of increase.

In addition, after the CPI rate peaked in 1918 at 20.44 percent, it has trended downward for the past one hundred years.

The inflation created by the Fed is losing its intended effect. The biggest risk is not significantly higher inflation.

Rather, the greater risk is credit default and financial markets implosion.

(also see Inflation Or Deflation – End Result Is Still Depression)

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!

Interest Rates Could Double/Treble Again

Interest rates increase

The steady increase in interest rates coupled with references to inflation has some people scratching their heads. Not surprising. The two don’t necessarily go together. For now, let’s see if we can add some perspective to interest rates.

Let’s start with a text message I received last week about mortgage rates…

High mortgage rates

Dad, I am in a national sales meeting. We are discussing inflation. What were mortgage rates in 1981?” 

I responded with a message that average annual mortgage rates in 1981 peaked at 16.63%.

That might be something to keep in mind when you read a headline that refers to the recent horrific increase in mortgage rates.

Yes, mortgage rates have increased sharply. For all of 2021, the average rate was 2.65%. We are six months into 2022 and mortgage rates have doubled. The current rate is 5.36%.

That is a huge percentage increase, but is it unreasonable? Depending on the context in which it is viewed, maybe not.

Bond prices

Over the same six month period that has seen mortgage rates double, the interest rate on the US Treasury 20YR bond has risen from 2% to a recent 3.45%, an increase of seventy-two percent. The corresponding decline (twenty-eight percent) in the underlying bond price is pictured in the chart (TLT ETF) below…

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Below is the same chart over the past three years…

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The decline in bond prices (and rise in interest rates) has been in force since early 2020. From a low of just over 1% in the summer of 2020, the interest rate on the US Treasury 20YR bond has more than tripled (1.06% to 3.45%) and the underlying bond price has declined by thirty-eight percent.

Long-term interest rates

As in the case of mortgage rates, the increase in long-term interest rates has been swift and significant. Yet, as we saw with mortgage rates above, some additional perspective can help.

Between 1971 and 1980, interest rates climbed to mind-numbing levels. The benchmark 10-year US Treasury Bond yield increased to a high in excess of 15%. 

With long-term treasury bond rates at historical highs and mortgage rates at 16%, how does that compare to where we are now? Are today’s high rates so horrific?

Of course, the systematic risk is there, but it has been all along. Percentage-wise, a rise in interest rates from 1% to 3% isn’t different from a rise from 5% to 15%. It is a matter of perspective.

And since the financial system and world economy are dependent on cheap credit, the ultimate cataclysmic event could come at any time.

The historic (centuries-old) average annual (all-inclusive) interest rate through the end of the twentieth century was approximately 8%.

Given that, is a 30-year mortgage at less than 3% reasonableOr, are interest rates at 15% in 1980 any more unreasonable than interest rates of 1% in 2020?

Conclusion

Interest rates have risen sharply of late. But they are only a fraction as high as interest rates forty years ago.

The world economy’s dependence on cheap credit has reached addictive proportion. The increase in interest rates heightens the systematic risk.

Nevertheless, the potential for much higher interest rates is great. At a minimum, interest rates would have to more than double from their current levels just to get close to long-term historic averages.

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 Price Targets On The Downside

Gold Price Targets

Almost everyone else continues to focus on the next upside leg for gold. In this article I will show some charts that allow for possible downside targets within the prevailing half-century uptrend.

There are four charts. I will provide some commentary after each chart. After that, I will add some final comments. The first chart follows…

GOLD PRICES 7-YEAR UPTREND (Chart No. 1)

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There are two possible support lines drawn on the chart above. The primary support line (B) dates back to the gold price low in December 2015.

Based on monthly average closing prices gold is currently touching a shorter support line (A); which, if it breaks down from here, does not appear to have much to keep it from falling back to as low as $1350-$1400 oz.

The second chart is virtually the same as Chart No. 1 above except that the prices have been adjusted for inflation 

GOLD PRICES 7-YEAR UPTREND – Inflation-Adjusted (Chart No. 2)

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The support line drawn touches the same points as support line (B) in Chart No. 1. In this chart though, I have not drawn in support line (A). It should be apparent why not.

In Chart No. 2, we can see that the gold price has already broken down and is in a clearly-defined downtrend dating back to its high in the summer of 2020.

The next potential support is in the same area as indicated in Chart No. 1; i.e., $1350-$1400 oz.

Immediately below is the third chart… 

GOLD PRICES 50-YEAR UPTREND (Chart No. 3)

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In Chart No. 3 there is a basic long-term uptrend dating back to 1970. At that time the price of gold was $36.56 oz. The other point of connection for the uptrend line was in March 2001 at $263.00 oz. This was the low point for the gold price after peaking twenty-one years earlier in 1980.

On the downside, the gold price could drop to about $1200.00 oz. without violating the price uptrend line dating back to 1970.

The next (and last) chart is, again, the same as the chart just above (No. 3), and once again, the prices have been adjusted for inflation…

 GOLD PRICES 50-YEAR UPTREND – Inflation-Adjusted (Chart No. 4)

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In Chart No. 4 above, the support line (A) is similar to that drawn in Chart No. 1, however, the potential support on a short-term basis comes in at $1450-$1500 oz., about $100 oz. higher than indicated earlier.

The biggest difference in Chart No. 4 versus what appears to be possible in the previous charts, is that the gold price could drop to as low as $700 oz. (ouch!) and still remain within its well-established long-term uptrend dating back to 1970.

GOLD – $700 or $7000?

Five years ago, in January 2017, I published the article Gold Price $700 Or $7000?. Two years later, in January 2019, I revised and republished the article as Gold Price – US$700 Or US$7000? 

In the article I discuss various scenarios that could bring about or accompany either of those gold price possibilities. I believe the article is just as pertinent today – maybe more so.

lf you have any interest in gold at all, I suggest you read it. You might learn something that will help you navigate what is ahead for gold and the world economy.

(also see Gold Has Lots Of Potential Downside)

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, Stocks, Bonds, Crypto And More

GLD (Gold ETF)

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From its high of 193 in early January to its recent low of 168, GLD has declined thirteen percent.

SPX (S&P 500 Index)

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From its high in late December at 4818, to its recent low of 3858, the S&P 500 Index has declined twenty percent.

TLT (Long Term US Treasury Bond Index)

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From its high point in early December at 155 to its recent low at 112, this ETF of long-term US Treasuries has declined twenty-seven percent.

BITCOIN FUTURES CME

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From its high point of just under 70,000 (69,355) in November past, the price of the most-watched cryptocurrency has declined a whopping sixty-three percent to its recent low at 25,350.

ALL-ASSET CRASH?

Before trying to answer that, there is another question to ask first that will help clarify the situation: Has any asset class or investment been going up lately? None that I am aware of – except energy and food.

Also, being short something is not an investment in a particular asset or asset class as much as it is a speculation on dropping prices. So we can rule out inverse ETFs, put options, and selling short.

We can also rule out real estate which seems to be treading water at best, with the possibility of going under as rates keep rising.

What about silver? I thought you’d never ask. Here is a similar chart to those above; this one is for SLV…

SLV (Silver ETF)

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From its 52-week high last June at 26.43 to its recent low at 19.01, SLV has declined twenty-eight percent.

Has anything gone up or at least not dropped recently? Well, yes; commodities in general. This includes primarily foodstuffs and energy which we have already mentioned, and some industrial commodities.

CRB INDEX

Since the beginning of the current calendar year the CRB Index has increased more than thirty percent. That is in direct contrast to nearly everything else we have mentioned thus far.

The index consists of 19 commodities: Aluminum, Cocoa, Coffee, Copper, Corn, Cotton, Crude Oil, Gold, Heating Oil, Lean Hogs, Live Cattle, Natural Gas, Nickel, Orange Juice, RBOB Gasoline, Silver, Soybeans, Sugar and Wheat. (source)

DIFFERENCES AND DISTINCTIONS

When we talk about the financial markets, we are referring to stocks (equities) and bonds (debts). We are also talking about derivatives based on those underlying items, such as ETFs, options, swaps, and spreads.

The financial markets are separate and distinct from the commodities markets. The fundamentals for both markets are different, yet, there are factors which can affect both markets.

The currency markets are also separate and distinct from the commodity and financial markets, although, what goes on in the currency markets can have significant impact on the financial (stock and bond) markets and, to a lesser extent, the commodities markets.

As in the financial markets, there are also derivatives in the commodities markets (options and futures) and currency markets (usually involving currency exchange rates).

FINANCIAL ASSETS ARE OVERPRICED

In the case of prices for stocks, bonds and other financial assets, the recent high prices discounted years of profitability.

Even allowing for a highly generous application of price-to-earnings ratios,  prices far exceeded the most favorable expectations for future growth.

The problem is much worse, though, than simple overvaluation of assets. The US and world economies are debt-dependent. The excessive valuations in financial asset prices are the result of an abundance of cheap credit.

Most economic activity is funded primarily by cheap credit; whether it be mortgages, business activity and corporate expansion, or retail consumption. Without access to unlimited amounts of credit the world economy would come to a standstill. The situation is precarious.

A FRAGILE ECONOMY AND A LOOMING DEPRESSION

Some are quick to assume that the Fed will take whatever steps are necessary to arrest the hellish descent. Of course, they will try. But they likely won’t be successful.

We have advanced too far down the path of money substitutes and cheap credit.

Also remember that the Fed is reacting to the effects of inflation and cheap credit which it (the Fed) created. (see Fed Action Accelerates Boom-Bust Cycle)

Whatever the Fed’s intentions are (or were), they caused the Great Depression of the 1930s and the Great Recession of 2008-2010.

The Next Great Depression will be worse and last longer. (Yes, I have said that before.)

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 Is Killing Silver

Ever wonder if that argument holds up? The chart (source) below indicates otherwise…

Silver Prices (inflation-adjusted) – 50 Year Historical Chart (1)

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According to the chart, it appears that silver continues to be pressured downwards as inflation gets worse. Where is the fundamental or technical appeal in that kind of price action?

Here is the same chart with the addition of a downward sloping line connecting the major silver price peaks dating back to 1980…

Silver Prices (inflation-adjusted) – 50 Year Historical Chart (2)

Image Most investors don’t consider inflation-adjusted pricing in their expectations or calculations for silver. The argument given is that silver prices will go a lot higher as inflation gets worse, but there is no historical indication of that.

Price-conscious investors are usually looking at other charts, such as the one below…

Silver Prices – 50 Year Historical Chart (3)

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The chart immediately above shows the long-term uptrend in silver prices since May 1970 from $1.61 oz to $22.31 oz currently. It is possible to be swayed by the numbers, but the numbers aren’t that good anyway.

On an inflation-adjusted basis the numbers are worse. Allowing for the effects of inflation, the increase isn’t even 2-to-1 ($22.31 divided by $11.96 = 1.86).

How excited can anyone be to own an investment that has almost doubled over the past fifty-two years (a 1.2% annual rate of return)?

The effects of inflation have recently done considerable damage to longer-term holders of silver.

For example, the average monthly closing price for silver in August 2011 was $41.76. The current, comparable inflation-adjusted price is $52.99 oz.

That means that the current silver price is forty-seven percent lower than it was in August 2011; and in inflation-adjusted terms it is fifty-eight percent lower.

Silver Price Uptrend

In chart number (3) above, there is a definite uptrend in nominal silver prices (prices not adjusted for inflation). Here is the chart with the addition of that uptrend line…

  Silver Prices – 50 Year Historical Chart (4)

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The uptrend line is clearly defined; even so, a drop in silver prices could go as low as $8.00 oz. without breaking it.

That ($8.00 oz) may seem far-fetched, but it is no more unrealistic than silver price projections of $100.00 oz. or more.

Silver – Up or Down?

Whether the silver price is headed higher or lower from here is hard to say. It could go either way in the short term. In the long term, though, silver has lots of room on the downside.

Since its peak in 1980 silver has not matched the effects of inflation, let alone produced any real profits. Silver price history doesn’t support current expectations for higher prices, but there are some painful examples of horrendous drops in price.

What Could Cause Silver to Drop

Silver has a history of lower prices regardless of economic conditions.

During The Great Depression (1930s) silver reached a low of $.28 oz.

Several decades later, in the middle of the greatest period of economic growth in US history (1980-2000), silver fell from nearly $50.00 oz. to under $3.00 oz. That is a drop of ninety-four percent without factoring in the effects of inflation.

Currently, the arguments in favor of higher silver prices are not consistent with the tale of history.

Any sustained movement in the direction of more moderate effects from inflation, or the occurrence of deflation, could take the silver price much lower.

If the US economic activity improves to any measurable degree, it would not provide any impetus for a higher silver price.

All factors considered, there isn’t a strong argument for higher silver prices. And, yet, inflation continues to erode real value from silver as its inflation-adjusted price continues to weaken over time (see chart number (2) above).

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!

Three Questions About Gold Price Manipulation

  1. Is there an ongoing attempt to suppress the gold price?
  2. If so, is that attempt successful?
  3. If it is successful to any degree, does it matter?

If the answer to No. 1 is yes, then it follows that the answer to No. 2 becomes critical. We, of course, have to define what “successful” means. Finally, then, we can judge the effects of those attempts and their impact.

Attempts to Suppress Gold Price

I think it is obvious that there are attempts to suppress the gold price, but we need to clarify some things before moving on to question No. 2.

Suppressing the gold price is not the primary goal. The goal is to support the US dollar. The purpose is to avoid or temper the crippling effects of inflation and the eventual demise of the dollar.

By doing so, the environment for banks to continue to lend money – and collect interest – in perpetuity is preserved.

Since the higher price of gold over time is a reflection of the loss in purchasing power of the US dollar, the focus and concern has to be the dollar. The logic is that if the price of gold can be suppressed, then the dollar weakness might be less apparent.

Functionally, this logic is similar to bonds and interest rates. If you want to manipulate interest rates to a lower level, and you have enough money, you buy bonds. Higher bond prices are the same thing as lower interest rates.

This particular strategy allows the US Treasury to borrow lots of money at cheaper rates; as long as the Fed and its primary dealers buy up whatever amount of debt isn’t sold at auction.

Sometimes, as in 2008 and again in 2020, a collapse in the credit markets is countered by the Federal Reserve gobbling up huge amounts of bonds and carrying them on their book for years afterwards.

In any case, the link between the gold price and the US dollar is clear. A higher gold price over time is indicative of a cheaper US dollar and vice versa.

Are Gold Price Suppression Attempts Considered Conspiracy?

Attempts to manipulate money and currencies have been evident for centuries. They are conspiratorial in nature, but they are not necessarily secret. They may also be interrelated to and part of larger conspiracy efforts that are incredibly more harmful and ill-conceived.

Regardless of the intentions of the perpetrators, at least with regards to money, the attempts are real and fairly evident. (see Gold market manipulation: Why, how, and how long?)

Gold Price Suppression Successful?

Are attempts to manipulate and suppress the gold price successful? Some people think so. Generally, that is the argument given by those who think the gold price should be much higher than it is.

How high should the gold price be? Answers given range from $3k to $10k and higher.

If the evidence of gold price suppression attempts are there, is the logic so simple as to infer that if it weren’t for the Fed, gold investors would be rich?

If one argues that “the gold price should be much higher” and it’s not, then logically, one might feel inclined to blame it on someone or something else.

Can a price projection of $3k gold justified? We have to know that any higher price expectations for gold are justified before we can assess how successful attempts to manipulate or suppress the gold price actually are.

For example, using $2k gold as our current benchmark price, and with the belief that gold should be priced at $3k, we are saying that gold is underpriced by fifty percent. Can that be attributed to price suppression?

If so, that would seem to indicate a reasonably successful attempt to suppress the gold price.

Absent the price suppression, then, would gold go straight to $3k? Maybe, but likely not. There are several reasons why not.

First, a gold price at $2,180 oz. would come close to matching its previous inflation-adjusted peaks from 1980, 2008, and 2020.  At $2,180 oz., the gold price would fully reflect the additional effects of inflation since its peak of $2060 oz. in August 2020. Hence, at $2180 oz., gold reflects full value in current dollars.

Second, in order for gold to exceed $2,180 oz., there would have to be further apparent and sustained weakness in the US dollar. That may happen, but it will take some time.

And, should that occur, it will mean that the US dollar will lose a commensurate amount of purchasing power before the gold price can move higher.

Also, while the effects of previous Fed inflation are showing up right now, the US dollar has been stronger of late – not weaker. In addition, there are the possibilities of disinflation and deflation, neither of which bode well for higher gold price expectations.

Currently gold is priced reasonably close to its inflation-adjusted value. It has never exceeded that point in the past. Don’t expect it to do so now. 

Does Gold Price Suppression Matter?

Attempts to suppress the gold price may appear to have an impact but they will not be successful in keeping the gold price from eventually reflecting the US dollar’s actual loss in purchasing power. See the chart below…

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

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The three successive peaks on the chart above from 1980, 2011, and 2020 are nearly identical; and that is not coincidental. They are all points where the gold price matched closely its actual value.

Gold’s value is in its use as money. There is no other value to gold except in a secondary role as jewelry, or for adornment.

Those who speak most strongly about gold price manipulation seem to think that without price suppression gold would be much higher. But that assumption presumes that gold’s value is something else other than real money and a store of value. It is not.

In other words, gold is not subject to the law of supply and demand in the ways that other goods and services are. Nor, is it comparable to stocks or other financial investments, real estate, etc.

In other words, strong demand for gold does not drive its price up. Only the actual loss in purchasing power of the US dollar determines a higher gold price. Below is the same chart as above, but in nominal prices only – no adjustments for inflation…

 Gold Prices – 100 Year Historical Chart

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Looking at the chart immediately above we might feel that it is just a matter of time before the gold rocket launches us into ultra-wealth. At this point we need to remember that even though the price of gold tripled between 1980 and 2011, it was no more valuable in 2011 than it was thirty years earlier.

And one ounce of gold today at $2000 is no more valuable than it was a century ago at $20.

Review and Conclusion

Yes, gold price manipulation is evident and ongoing.

Whether it is successful or not is open to debate. At times it may appear to be so, but attempts at gold price suppression have never kept the gold price from eventually reaching its true value.

It matters not so much that gold price manipulation occurs, or that it may have an impact. What matters more, and that which presents a greater risk to investors, is unrealistic expectations.

It is unrealistic to expect substantially higher gold prices without an equally greater loss in US dollar purchasing power first. That could happen quickly or it might take longer than many expect.

Whatever the timeline, any appreciable movements higher in the gold price above $2000 oz. don’t present a profit opportunity as long as gold remains close to its previous inflation-adjusted high points. (also see Gold Gains In Price Only – Not In Value and Not About Gold – All About The 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!

Gold Gains In Price Only – Not In Value

Gold Gains in Price Only

Let’s look at the following three charts in succession. Then we’ll talk about them…

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

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October 2021 Gold Prices (inflation-adjusted) – 100 Year Historical Chart

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December 2017 Gold Prices (inflation-adjusted) – 100 Year Historical Chart

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All three charts are the same except for the additional price action shown since the date of the previous chart. Also, the price peaks have been updated to reflect the effects of inflation on the original previous prices.

Here is the information in table form with an explanation afterwords…

ACTUAL PRICES DEC2017 OCT2021 CURRENT

JANUARY 1980 $ 678 oz. $2175 oz. $2380 oz. $2505 oz.

AUGUST 2011 $1825 oz. $1990 oz. $2210 oz. $2315 oz.

AUGUST 2020. $1970 oz. $2078 oz. $2179 oz.

The column on the left lists the prices in effect on the dates indicated. In other words, the average monthly closing price for gold in January 1980 was $678 oz.; in August 2011 it was $1825 oz., and in August 2020 it was $1970 oz.

The three columns on the right list the inflation-adjusted prices which correspond to the respective price peaks. For example, after adjusting for the effects of inflation, $678 oz. in 1980 is the equivalent of $2175 oz. in December 2017. In October 2021, the effects of inflation had taken that number to $2380 oz. Currently, the $678 oz. peak from 1980 is the equivalent of $2505 oz.

The price of gold continues to increase reflecting the deterioration and loss in purchasing power of the US dollar.

However, in inflation-adjusted terms, the price of gold has never exceeded its 1980 peak and has actually failed to match it, both in 2011 and 2020. In addition, each successive peak is visibly lower than the previous peak.

Is Gold Declining In Real Terms?

Is gold declining in real terms? Not likely. One factor which might be keeping gold from matching its 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)

However, 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)

Gold Is Real Money – Nothing Else

Gold is real money and the original measure of value for everything else. Gold’s value is in its use as money and that value is constant.

The price of gold cannot exceed previous price peaks on an inflation-adjusted basis.

War, social unrest, political turmoil, economic conditions, interest rates, housing starts, etc. have nothing to do with the price of gold or its value. The only reason for a higher gold price over time is the loss in purchasing power of the US dollar.

Gold’s higher price in dollars at any time NEVER represents an increase in gold’s value and is ALWAYS indicative of dollar weakness that has already occurred.

Price expectations for gold by marketers and investors need to be modified, not amplified.

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!

Not About Gold – All About The Dollar

It’s Not About Gold

There is also additional talk about what this means with respect to the price of gold, but that is just talk.

The price of gold tells us nothing about gold. The only thing a continually rising gold price tells us is that the US dollar continues to lose purchasing power.

It’s All About The Dollar

As for replacing the US dollar as the world’s reserve currency, is there a better alternative? Below is a chart (source) of DXY (US Dollar Index)…

DXY (U.S. Dollar Index)

There is information in the chart above that might change our perception of the current status of the US dollar; namely, the US Dollar Index is at the same level today as it was thirty-five years ago, in 1987.

Also, the US Dollar Index risen forty percent from its low point in 2008.

Now, lets look at the how the US Dollar Index has fared over the past ten years…

DXY (U.S. Dollar Index) 10-Year

In the above chart we can see that the US dollar has risen twenty-five percent since mid-2014 and, looking at both charts, appears to have established progressively higher levels of support at 70, 80, and 90.

US Dollar, Chinese Yuan & Gold

Now, let’s look at one of the currencies not in the US dollar index. The Chinese Yuan has been mentioned both singly and, along with other currencies, as an alternative to the US dollar. See the chart (

Now, let’s look at one of the currencies not in the US dollar index. The Chinese Yuan has been mentioned both singly and, along with other currencies, as an alternative to the US dollar. See the chart (source) below…

Dollar Yuan Exchange Rate (10-Year)

As China’s role in international trade has grown, so, too, has the attention paid to its currency.

The past couple of years have seen the Yuan strengthen vs. the US dollar but it probably isn’t a viable alternative to the US dollar.

The Yuan has also been suggested as an alternative to the dollar for international pricing of gold. That, too, is unlikely to happen.

Whether it does or doesn’t, though, is irrelevant as far as any expected changes in gold.

Conclusion

The US dollar is the world’s reserve currency. That isn’t likely to change soon – unless there is a calamitous implosion of the dollar. A calamitous implosion implies outright rejection and repudiation.

That could happen, of course. The problem is that there isn’t another currency that could likely take the place of the US dollar. By the time any potential calamity becomes a reality, any possible candidates would likely be in worse shape.

Other alternatives have been suggested, such as cryptocurrencies, but those are not currencies or money. They are processes for the private transfer of money. The privacy feature will not be a factor for very long, either, as governments and regulators continue to speak and act with the intention of exerting control over the processes.

All currencies are substitutes for real money, i.e. gold. And because all governments inflate and destroy their own currencies, the possibility of gold reasserting itself as the international medium of exchange continues to increase.

Even so, a lot of worse stuff has to happen before we get to that point. Governments around the world have too much at stake to capitulate when it comes to ceasing to issue ‘funny money’. (also see Gold And US Dollar Hegemony)

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!

Problem With Predictions For $20K Gold

Predictions for $20k Gold

That part of the explanation is correct. And it is what I have been saying in my articles over and over again; namely, a higher gold price reflects the loss in purchasing power of the US dollar that has already occurred – nothing more, nothing else.

Since the origin (1913) of the Federal Reserve, the US dollar has lost ninety-nine percent of its purchasing power. It takes one hundred dollars today to buy a similar amount of goods and services compared to what one dollar would buy a century ago.

When the gold price peaked in 2020 at $2067 oz., it reflected fully a ninety-nine percent loss in US dollar purchasing power at that time.

The one-hundred fold increase in gold’s price matches the one-hundred fold increase in prices for consumer goods and services.

A ninety percent loss in the US dollar from its current value would bring about a corresponding ten-fold increase in the price of gold from this point. In round numbers, that means gold at $2000 today would be priced at $20,000. No argument there.

The problem is that the increase in the gold price is repeatedly referred to in the article as an increase in its value. That is not correct.

Gold Price vs Value

The value of gold is constant. It is a store of value and real money. Gold’s primary value is in its use as money and it has a secondary use in jewelry and adornment.

Its price in dollars increases over time to reflect the actual loss in purchasing power of the US dollar. This is shown on the chart below…

It is not difficult to imagine what this chart would look like with a near vertical line straight up to $20,000. It would likely be viewed as the moon shot that has long been expected and continually eludes gold investors.

Before getting carried away, though, let’s look at another chart…

On the chart immediately above, it is clear that gold’s value has not increased – just its price. The price increase accounts for the effects of inflation.

What you could buy with one ounce of gold at $660 in 1980 is the same as what you could buy with one ounce of gold in 2011 at $1895 and in 2020 at $2060.

The same analysis holds true for gold at $20,000 oz. ONE OUNCE OF GOLD AT $20,000 WILL HAVE THE SAME VALUE (PURCHASING POWER) AS ONE OUNCE OF GOLD TODAY AT $1900.

Remember, the predicted $20,000 price for gold is contingent upon a corresponding decline in US dollar purchasing power. A projected ninety percent drop in the dollar’s value means that prices for ordinary goods and services would rise ten-fold.

Imagine you were paying $40 per gallon for gasoline, or $25 for a loaf of bread. A gallon of milk would cost $30 or more.

A one-bedroom apartment today at $2000 per month would cost $20,000 per month after a ninety percent drop in the US dollar.

Will the US Dollar Collapse?

Losing ninety percent of its value is tantamount to a collapse and potential repudiation of the US dollar. By focusing on the price increase expected from gold under those conditions, some may have a tendency to ignore or dismiss other factors.

IF the US dollar loses ninety percent of its current value, you will need gold to be at $20,000 just to break even.

If there is a complete collapse in the dollar, including outright rejection and repudiation, it will not matter what the price of gold is – if there is a quoted price.

For example, if dollars become totally worthless, what difference does it make what the price of gold will be?

All that will matter is how much gold you own – any price appreciation becomes irrelevant.

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 At $2000 Or $600? No Difference

Gold at $2000

With the current gold price at $1958 oz., the $2000 number is the sweet midpoint of that range. It is a nice round number and seems to be the price most gold traders and investors are focusing on at this time.

It is probably a good idea, therefore, to see if the $2k gold price holds any special significance other than what most in the gold community are thinking about.

And it does.

Gold at $600

Gold at $2000 oz. today is the same as it was in 1980 at $600 oz. In other words, on an inflation-adjusted basis, gold is no more valuable today than it was forty-two years ago.

One ounce of gold today at $2000 is equal to one ounce of gold in 1980 at $600. What you can buy with one ounce of gold today is equal to what you could buy with one ounce of gold more than four decades ago.

This is consistent with gold’s role as a store of value.

Gold at $3k, $10k?

We have heard much lately from those who claim that gold could easily rise to $3000 oz. or more; maybe even $10,000 oz. Some say it could happen quickly, too.

Those prices are possible, of course; but likely not quickly or easily. That is because gold – at $2000 oz. – already represents fully a ninety-nine percent decline in the purchasing power of the US dollar.

In order for gold to rise beyond $2000 oz., and stay above that number or increase to a higher level, there would need to be further significant declines in US dollar purchasing power that are apparent and permanent.

The price of gold reflects the effects of inflation that have already been absorbed into the economy; not those which haven’t occurred yet.

What to Expect Next From Gold

Not much. The price could run up a bit again to as high as $2100 oz., but we probably have seen the highs for this move up.

If there is an extended period of US dollar strength or continued improvement in the economy, then the gold price could decline sharply. And it could stay down for several years, too.

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!

Bull (The Fed) In A China Shop (The Economy)

Bull(The FED)

Each morsel of data receives the strictest attention. The actions are mostly for naught, of course. That is because most of those asking the questions are unaware of certain facts that would change the nature and tone of Fed focus overnight.

Federal Reserve Facts

  • The Federal Reserve is a banker’s bank. Its origin in 1913 is shrouded in conspiracy.
  • The Federal Reserve creates inflation.
  • The Federal Reserve caused the Great Depression of the 1930s and the Credit Collapse and Great Recession of 2008-09.
  • Federal Reserve inflation is losing its intended effect.

The Federal Reserve Is a Banker’s Bank

The purpose of the Federal Reserve is to provide a structured system whereby its member banks can create and lend money in perpetuity. The Fed accomplishes this by continually expanding the supply of money and credit.

The Federal Reserve exists for the benefit of the banks and bankers. Their purpose and motivation is not aligned with ours. The Fed’s objective is to facilitate the ongoing creation of money and loans which generate interest income. (see The Federal Reserve – Purpose And Motivation)

The Federal Reserve Creates Inflation

The U.S. Treasury, in conjunction with the Federal Reserve, continually expands the supply of money and credit by issuing Treasury bonds, notes, and bills.

The money received from the sale of the Treasury securities is credited to the U.S. Treasury and subsequently spent to pay the government’s expenses. This puts the money back into circulation.

But the newly issued Treasury securities are then in circulation too, and are an increase in the supply of money and credit. This is called monetization of the debt, and it is an act of inflation.

China Shop (The Economy)

The Federal Reserve caused the Great Depression of the 1930s.

Since its inception, the Federal Reserve has used interest rates and credit to accomplish its purpose. The manipulation of margin requirements in the 1920s and the extension of credit to (almost) anyone who wanted to buy stocks led to excessively high stock prices and rampant speculation.

According to Wikipedia, “brokers were routinely lending to small investors more than two-thirds of the face value of the stocks they were buying.”

It is important to note some critical distinctions regarding events, conditions, causes, and participants.

First, the stock market crash in 1929 was a financial event. The Great Depression was an economic event.

Second, the Federal Reserve created the conditions which led to the stock market crash, not the crash itself.

Third, the Federal Reserve caused the Great Depression by pursuing a tight money policy, i.e., raising interest rates, in 1928 and 1929.

Cheap and easy credit, courtesy of the Federal Reserve, fueled the stock market and boosted consumer spending throughout the 1920s (Roaring Twenties).

When the Fed raised rates, it dampened consumer spending but did nothing to contain the public’s voracious appetite for stocks. As long as investors (speculators) could buy stocks on margin so easily, there seemed to be no limit to how high stocks could rise.

After the stock market crashed, economic conditions continued to deteriorate, now with speed and severity.

The Fed’s actions, coupled with the government’s economic policies, deepened and lengthened the duration of economic distress from what might have lasted a year or two at most, into a horrible (Great) depression that lasted twelve years and affected nearly everyone.

The Fed’s Dilemma

There is criticism now that because of actions taken to raise interest rates that the Fed is guilty of policy error… “The Fed needs to be more accommodative at this time.”

Not too long ago, people were complaining that the Federal Reserve was not acting decisively enough.

Part of the problem is seeing the entire situation for what it is – and not for what we think it is, or want it to be.

Inflation and low-interest-rate policies were slow in stimulating the desired results.

Similar to the repeated doses of a drug addict, each succeeding monetary fix is less and less effective. The fixes, at best, allow the patient (i.e. the economy) to sustain life temporarily. With each passing day, the possibility of slipping into a coma (recession, depression, etc) increases.

Continuing down the path of artificially low-interest rates and ultra-cheap credit would eventually kill the U.S. dollar. The Fed knows this.

Their decision a few years ago to begin raising rates slowly was an attempt to begin a return to a more normal level of economic activity with interest rates at more reasonably normal levels.

Unfortunately, that action has its own serious risks. Easy credit and low-interest rates are the new normal. Attempts to generate higher rates from abnormally low levels create additional strain on an economic system that is already quite fragile. As bad as cheap credit can be on a fundamental basis, the effects of withdrawal from it can be worse.

Stocks, bonds, and real estate have all benefited from cheap and easy credit. The ‘reflation’ effort was the primary reason that asset prices rose so dramatically from their post-crash lows ten years ago and two years ago.

In other words, all asset prices are severely and artificially overblown. Another credit collapse is likely in the cards. And nothing will be spared.

The reason the Fed began to raise interest rates is that continued easing could again trigger huge declines in the dollar. On the other hand, raising rates raises the possibility that the system won’t tolerate the restrictions well enough to get better, and another collapse could ensue.

Most Federal Reserve activity for the past several years is based on fear. On one hand, they are afraid of killing the patient (the US dollar) with an overdose of cheap money and easy credit.

On the other hand, they are afraid that efforts to restore interest rates to a more historically normal level will be rejected and the system will collapse anyway.

The Federal Reserve reacts to the same news and headline statistics that we all see and hear. And whatever actions are taken have less and less impact (Fed Inflation Is Losing Its Intended Effect).

What is ironic is that the Fed is trying to manage the effects of inflation that is of their own making.

Options for the Federal Reserve

The path towards higher interest rates will be followed until the patient screams too loudly, or a full-scale collapse occurs. Then we can expect to see a return to a more accommodative monetary policy.

Unfortunately, it will be too late.

Any efforts by the Fed to halt or recover from financial and economic calamity the next time around will likely be ineffective. Fundamental laws of economics cannot be abused and ignored indefinitely without eventually paying the price.

Since the inception of the Federal Reserve in 1913, inflation intentionally created by the Fed has erased ninety-nine percent of the US dollar’s purchasing power. The Fed caused the Great Depression of the 1930s and the credit collapse in 2008. Their policies and actions have brought us directly to our current predicament.

Today, most of the Fed’s time is consumed with trying to manage the effects of the inflation which been created over the past century.

The US dollar is in a state of perpetual decline (by intention) which can ultimately end in complete repudiation.  Whether or not the Federal Reserve continues to raise interest rates is not the real issue. The Fed will do – or not do – whatever they think will keep the charade going for a while longer.

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!

$100 Silver – Nothing Has Changed

The price is higher than it was at the time the article was written, and that is certainly positive. However, the net change since then does not alter the fundamental arguments stated in the original article. Let’s review the salient points now.

Silver Price History – Short Review

Projections for $100 silver date back more than forty-two years to early 1980. Silver had posted an intra-day high of $49.45 oz. in January 1980 and was consolidating at lower prices closer to $36.00 oz.

The monthly average closing price for silver in January 1980 was $35.75 oz. and in February it was $36.15 oz.

After that, it was all downhill. Thirteen years later, in 1993, silver was priced at $3.36 oz. and continued to trade below $5.00 oz. for eight more years until 2001.

We know that silver recovered and regained the lost ground, rising back to $48.50 oz. in August 2011. The monthly average closing price in July 2011 was $40.10 oz and in August it was $41.76.

The numbers in 2011 ($40-41.00 oz.) were somewhat better than in 1980 ($36.00an s oz.) but it took silver thirty-one years to get there. Also, silver’s intra-day price peak in 2011 did not exceed its 1980 intra-day peak.

Several years later the silver price dropped to under $14.00 oz., in January 2016 and again in November 2018. At the time (November 2019) I wrote the original article, silver had recovered some lost ground and had traded above $18.00 oz.

Silver Price Action Since November 2019

After a recovery peak above $18.00 oz. in early 2020, silver fell victim to the all-asset slide that occurred in March-April 2020, dropping briefly below $12.00 oz. before moving to a high of $29.26 oz. later that year.

Silver flirted with the $30.00 level again in May 2021, then dropped down to $21.49 in December 2021. The price of silver is now at $25.83 oz.

Here is a chart (source) showing silver price action for the past five years.

Here is the same chart with silver prices adjusted for inflation

Up until its recent upward spike, the silver price was in an apparent downtrend since its peak in August 2020.

That downtrend is more pronounced in the inflation-adjusted chart. The upward spike this year could be just a temporary reversal within a bigger downtrend. Only time will tell.

The effects of inflation are a drag on nominal prices which can be seen by looking at the price scales on the left in both charts.

The previous price peak of $29.00 oz in August 2020 is now equivalent to $31.00 oz in today’s dollars.

Silver Price History Long Term

The effects of inflation are even more pronounced over time. Here are two more charts (same source as before).

We mentioned earlier that the peak monthly average closing price for silver in 1980 was $36.00 oz. and in 2011 was $41.00 oz. That is a cumulative total increase of only thirteen percent; and it took thirty-one years to happen.

What is much worse, though, is that the inflation-adjusted total return for silver over that thirty-one year period is negative sixty percent (-60%) on a peak to peak basis.

Silver – Where Are We Now?

Using the current silver price, which is down almost fifty percent since August 2011, silver has lost eighty percent since February 1980.

Using the monthly average closing price ($36.00 oz.) cited and shown on the chart immediately above, and allowing for the effects of inflation, the silver price needs to be at $130.00 oz. today – just to match its $36.00 oz. price in February 1980.

If we calculate similarly using the 1980 intraday high of $49.45 oz., then silver needs to be $180.00 oz today – again, just to match that 1980 peak price.

Facts and Conclusion

  • Silver has yet to exceed its 1980 intraday high in nominal terms.
  • Silver is currently fifty percent lower than its 1980 peak in nominal terms and eighty-five percent lower in real (inflation-adjusted) terms.
  • Each inflation-adjusted peak in silver since 1980 is lower that the previous one.
  • If the silver price were at $100.00 oz. today, that is still a net loss of forty-five percent in real terms since 1980.

Holding some silver coins for possible use in the event of a complete collapse in the US dollar makes sense. Other than that, buying silver as an investment has proven itself historically to be a losing bet in both nominal and real terms. (also see Is Silver Really Cheap; And Does It Matter?)

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!

No Profit Potential in Gold

The closer gold’s price is to its most recent inflation-adjusted price peak, then the less potential for short-term profits. See the chart below.

Chart Gold

The peak (monthly average closing prices) for gold in July 2020 was $1971 oz. The intraday peak was somewhat higher at $2060 oz.

On an inflation-adjusted basis, those numbers are now $2139 oz. vs. the $1971 oz., and $2230 oz. vs the $2060 oz. intraday peak.

IF the gold price were to match the previous top on an inflation-adjusted basis, then there is a possible increase of somewhere between 2-300 dollars per ounce in the offing.

The closer the gold price gets (currently $1920 oz.) to $2000 oz., though, the less reliable are any such expectations. Here’s why.

Previous Gold Price Peaks

All inflation-adjusted gold price peaks since 1971 occurred at similar points.

That is because, at those points, the gold price reflected fully the loss in purchasing power in the US dollar that had already occurred previously. This can be seen on the chart below.

Chart 2

For example, the peak in 1980 ($850 oz) allowed for depreciation in the US dollar that had occurred up to that point. The peak in 2011 ($1895 oz.) allowed for US dollar loss in purchasing power that had taken place since the previous peak in 1980.

Recently, in 2020 ($2060 oz.), the gold price peak reflected additional inflation effects that occurred after 2011 and up to 2020.

Gold Price Is All About the US Dollar

There is very little gold can do at this point unless the US dollar were to weaken significantly and quickly. That is not likely to happen.

Even in the face of confrontation between the US and Russia, the US dollar is stronger; not weaker.

Those who claim that gold will benefit from geopolitical storms and economic crises are mistaken.

The gold price moves higher for one reason only: to reflect the accumulated loss in purchasing power of the US dollar. It does so in hindsight, too.

With a US dollar that strengthens as other crises deepen and multiply, there is no reason to expect new highs in the gold price.

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!

Investing In Gold Long Term Is A Losing Bet

Investing in Gold Long Term

Most of them are still positive and optimistic in their projections but have become more sanguine about when to expect higher prices. Generally speaking, the higher price expectations tend to be on the north side of $2000 oz.; sometimes much farther north.

When we look at a long-term chart of gold prices, it is reassuring to see the progression of higher prices over time. See the chart below which reflects gold prices over the past fifty years.

There is a sustained uptrend in the gold price over that time from $36 oz. to in excess of $1800 oz. currently.

The chart below reflects the same price plots but allows for the effects of inflation. Hence, the uptrend is not so clear and obvious.

historical-gold-prices-100-year-chart-2022-02-17-macrotrends

In fact, the pattern is distorted considerably; and rather than a singular clear uptrend, there are two decade-long periods of rising prices separated by a twenty-year period of declining prices.

After the peak in 2011, the price of gold declined for five years before moving back up to a third peak in 2020. (see The Meaning Behind Gold’s Triple Top)

The three gold price peaks (1980, 2011, 2020) are all noted on the chart below.

historical-gold-prices-100-year-chart-2021-07-12-macrotrends-2-1

All major turning points (1933, 1971, 1980, 2000, 2011) in the gold price prior to 2020 coincided with major turning points 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.

However, there are periodic changes in US dollar valuations and these changes can last for years, such as 1980-2000 and 2011-2016. During such periods the price of gold can and does decline considerably.

The More Things Change

The gold price is always changing. Over the past fifty years, it has generally risen in a sustained manner. But the effects of inflation on the US dollar are volatile and unpredictable.

The dollar’s loss in purchasing power has been unusually subtle at times. During those periods, the price of gold doesn’t do much, or even declines.

The declines can be quite steep and last for years. We mentioned earlier the decline in gold between 1980 and 2000. The actual numbers are quite sobering.

From its average closing price of $678 oz. in January 1980 the price of gold spent twenty years working its way lower by sixty-three percent @ $250 oz.

The decline as stated is bad enough, but the continual erosion from the effects of inflation exacerbated the damage.

On an inflation-adjusted basis, the decline was more than eighty (83.3) percent. In addition, a long-term investor who owned gold at $678 oz. in January 1980 had to wait 31 years (2011) to get close to break-even.

The insult to the injury is that even after waiting for forty years, the gold price peak in August 2020 still did not exceed its 1980 peak in inflation-adjusted terms.

The numbers now are even worse. Today’s equivalent gold price for the 1980 peak of $678 oz. is $2450 oz. With gold currently at $1871 oz., its price is cheaper by 24% compared to January 1980.

The More They Remain the Same

Gold’s value is in its use as money. That value is stable and constant. The price of gold increases to reflect the loss in purchasing power of the US dollar – nothing more and nothing else.

Most investors in gold aren’t investors at all. They are traders. As traders, they are short-term oriented, impatient, and have unrealistic expectations; especially as those things pertain to gold. (see Gold Is Not An Investment – You Won’t Get Rich)

The problem for those who still labor under the delusion that gold is an investment is that time is NOT on their side.

Gold’s price rises in hindsight. It does so to reflect the effects of inflation that have already occurred and registered within the economy.

When the gold price peaked in 2020, it reflected a full ninety-nine percent decline in US dollar purchasing power over the past century.

Expecting more from gold at this time is unwarranted. (also see Gold Has Lots Of Potential Downside)

Goldman Still Looking for $2k Gold

“In a report published Thursday, the bank (i.e. Goldman Sachs) said that it is raising its 12-month price forecast to $2,150 an ounce, up from its previous target of $2,000. The bank also recommends buying December 2022 gold futures.” Kitco News 01/26/2022

Here is a similar news report from six months ago:

“In a situation of continuing global recovery and only moderate inflation, Goldman Sachs expects a gold price of US$ 2,000, which would imply an upside of about 10% from current prices.” Kitco News 07/06/2021

Six months earlier, Goldman was more optimistic

Goldman Sachs sticks to gold price target of US$ 2,300 for 2021:
“The global investment bank Goldman has reiterated its previous 12 month target of US$ 2,300 for the gold price.” . 11/17/2020

Finally, prior to that, is this Goldman Sachs projection from July 2020

Goldman Sachs raises the gold price forecast for the next 12 months from USD 2,000 to USD 2,300.

According to a team of analysts at Goldman Sachs, the global investment bank, the rise in the price of gold to new highs, which lately has outpaced gains in real interest rates and other alternatives to the US dollar, has been driven by “a potential shift in the U.S. Fed toward an inflationary bias against a backdrop of rising geopolitical tensions, elevated U.S. domestic political and social uncertainty, and a growing second wave of COVID-19 related infections.” 07/28/2020

At the time Goldman raised their projection for the gold price to $2300 oz, gold was already at $1958 oz. After hitting an intraday peak of $2060 oz. a few days later, the gold price quickly moved back under $2000 oz. and has not exceeded that price since.

Question: Why Is Goldman Still Looking for 2k Gold?

Goldman Sachs repeated projections for a future gold price at $2000 oz. or better have come after the gold price exceeded the expected target, rather than before. And the pattern is similar to that which occurred after the post-2011 gold price peak of $1895 oz…

“The gold price should continue to climb in 2012… with the price forecast to hit $1,940 from today’s $1,607.”

Following that officious pronouncement, the gold price continued its decline to a low of $1049 oz. in December 2015 and did not reach the projected target until nearly five years later after that.

Why does Goldman persist in making predictions for a gold price that has already occurred?

Answer: It’s Part of the Game

It’s not just Goldman Sachs. Wall Street doesn’t like gold.

Financial advisors are in the business of managing money. So in order to satisfy the demand for gold-related investment vehicles, it has given us a plethora of stocks, mutual funds, ETFs, and other paper substitutes and products that supposedly represent the real thing.

Your broker or financial planner can easily incorporate these types of investments into your asset allocation model without too much trouble.

It boils down to marketing. It’s all about money under management.

Your broker or financial planner isn’t going to tell you to buy gold coins with 10-20 percent of your assets and take delivery of them. But he or she might tell you to put some of your dollars into a gold-related mutual fund or ETF.

How Goldman Sachs Really Feels About Gold

In late July 2020 during an interview with CNBC, the chief investment officer of private wealth management at Goldman Sachs made the following statement:

“Our view is that gold is only appropriate if you have a very strong view that the U.S. dollar is going to be debased. We don’t have that view… So all this excitement and brouhaha about gold is not something that we buy into.” Sharmin Mossavar-Rahmani

Somewhat ironically, Ms. Mossavar-Rahmani’s statement was made just after a team of commodity analysts at Goldman raised their 12-month forecast for gold to $2300 from $2000 (same projection cited previously in this article).

Is Ms. Mossavar-Rahmani not aware that the U.S. dollar has already been debased by ninety-nine percent? And, that gold at $2000 oz. (a one-hundred fold increase from $20 per ounce) already reflects that debasement and subsequent loss of US dollar purchasing power?

Gold Value Is Not About Price

Projections for the gold price by Goldman Sachs and other Wall Street banks have little value for investors and others.

Gold’s value is not about price. In fact, the price of gold tells us nothing about gold’s value. (see Gold And The Elusive Chase For-Profits)

The current gold price is merely a reflection of the accumulated loss in purchasing power of the US dollar.

Further higher gold prices will occur only after additional loss of purchasing power in the US dollar – over a longer period of time.

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!