EVERYTHING PEAKED IN 1980
Both gold and crude oil peaked at all-time highs in 1980. Those highs are still intact when the effects of inflation are accounted for. Below are the charts for both gold and crude oil…
Gold
What’s Next For Gold Is Always About The US Dollar
Since the origin of the Federal Reserve in 1913 the US dollar has lost ninety-nine percent of its purchasing power.
Not coincidentally, but in direct reflection of the dollar’s loss in purchasing power, the price of gold has multiplied one hundred fold from $20.67 oz to $2060 oz as of August 2020.
Higher Gold Price Vs. Inflation Expectations
HIGHER GOLD PRICE VS. INFLATION
The actions by the Federal Reserve over the past year have led many to assume that much higher inflation is a foregone conclusion. This leads to a further expectation that a much higher gold price is imminent.
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.
Comparing Bitcoin To Gold
Comparing Bitcoin To Gold – Store(s) Of Value?
Mark Cuban claims that Bitcoin is a better store of value than gold. Is he correct?
Gold – Insurance, A Hedge, An Investment
After decades of concerted effort by governments and central banks, the focus away from gold as money has led to its characterization as an investment, a hedge, insurance, etc. Some still refer to it as a barbarous relic. Are any of these descriptions valid?
The Meaning Behind Gold’s Triple Top
In a previous article I wrote:
“Looking at this chart, it should be apparent that gold at $2000 is fully-priced. Unless you are convinced that the US dollar is going to crash soon, then expectations for much higher gold prices at this point are unwarranted.” ($10,000 Gold Or A Triple Top?)
The article was published in August 2020 and the chart is reprinted below…
A Fair Price For Gold – $1000 Or $2000?
What is a fair price for gold? How can we know if gold, or any other money, is worth what we can buy with it?
So, what can we buy with it? And how do we know that the value of our gold/money is realistically priced?
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?
Gold Price During Hyperinflation
Let’s start by defining hyperinflation…
“Hyperinflation is a term to describe rapid, excessive, and out-of-control general price increases in an economy. While inflation is a measure of the pace of rising prices for goods and services, hyperinflation is rapidly rising inflation, typically measuring more than 50% per month.” (source)
In addition, hyperinflation is described as “an extreme case of monetary devaluation that is so rapid and out of control that the normal concepts of value and prices are meaningless.”
The latter description is much more characteristic of the potential threat that most people envision when they invoke the term hyperinflation.
Under the conditions characterized by price increases “so rapid and out of control that the normal concepts of value and prices are meaningless”, what would happen to the price of gold?
Higher Gold Price Not Correlated To Money Supply Growth
To say that “a higher gold price is not correlated to money supply growth” is fundamentally correct. However, the expectation for a much higher gold price resulting from huge money creation by the Federal Reserve is shared universally by investors, analysts, and others.
In fact, it is considered almost scriptural canon that a huge increase in the money supply will lead inevitably to a huge increase in the gold price. Historical examples of France in the late 18th century, Germany (Weimar Republic) in the 1920s, and Zimbabwe or Venezuela more recently, are often cited as proof of the relationship between money supply growth and its effect on gold prices.
That is not the case, though.
Gold Prices – Don’t Get Too Excited
GOOD NEWS… The rebound in gold prices from their recent low has awakened new fervor among those looking for the elusive moonshot. The ‘obvious’ signs of much higher inflation have emboldened those who are inclined to predict ever higher gold prices.
Contrastingly, the chart of GLD prices pictured below doesn’t look all that great…