NOTE TO READERS: “Global Credit Collapse Is Deflationary” was originally published as an exclusive for TalkMarkets on October 29, 2024. I have not changed anything in the article, nor is there any reason to modify or alter what is written below because of U.S. election results.
Kelsey Williams
Throwing Gold BRICS At Broken Windows
THROWING GOLD BRICS
The latest salvo fired at the U.S. dollar by BRICS countries includes press reports about “creating an international precious metals exchange to ensure fair pricing and trade growth”. Russia’s finance minister, Anton Siluanov, announced that Russia is currently in talks with other BRICS members about such an exchange.
Previously, for several years, we have heard about a potential BRICS sponsored currency or monetary unit, that would minimize the dominant role of the U.S. dollar with regards to international trade, and supplant or replace the dollar as a reserve currency. The attraction of an alternative to the U.S. dollar is hopefully enhanced and stimulated by incorporating gold ‘backing’ into any proposed formula.
WHAT IS BEHIND THE BRICS MOVEMENT?
To be quite frank, the motivation and driving forces behind BRICS are political and retaliatory in nature. As the accepted voice of the BRICS countries, Russia speaks loudly and clearly about their displeasure and disenchantment with trade sanctions, the dominant role of the U.S. dollar, and the United States in general. In addition, Russia is unhappy over its own failure to achieve global supremacy.
Throw in a freedom-hating China, which would like to see the Yuan replace the dollar and maybe control the gold market, plus a few other countries with their own axe to grind, and you wind up with BRICS (Brazil, Russia, India, China, South Africa, and the rest).
As a group, the countries that make up BRICS account for more than one-third (37%) of the global economy. BRICS has the potential to wield some clout, but tenuous and suspect relationships between and among the various member countries will tend to water down any “official” agreements and actions. (A similar negative, counterbalance exists within OPEC: a certain individual nation(s) acts contrary to the group’s expressed policies and desires, limiting the potential impact of embargoes and production quotas.)
The BRICS movement is not about gold. It is a politically-motivated, anti-U.S. and anti-dollar movement. Russia and China are more concerned about supremacy and control than in fostering a more reliable and stable currency. Using gold to further their efforts and accomplish their intentions is convenient. Otherwise, they would not go to the trouble of creating the charade known as BRICS and suggesting a gold-backed alternative to the U.S. dollar.
GOLD, BRICS, & THE GREAT RESET
The talk about a gold-backed international currency has gold bulls fantasizing about supernormal and unrealistic prices for gold. This has exacerbated negative sentiment and analysis about the U.S. dollar from those who might otherwise be less enthusiastic about “the coming collapse of the dollar” and the ushering in of the Great Reset.
The Great Reset is today’s best example of decades-old predictions about a ‘new’ currency to replace the ‘old’ dollar. It isn’t that there aren’t forces out there who are conspiring to bring about financial and economic upheaval en route to their goal of one-world government and global domination; there definitely are. The Great Reset is likely part of that secret cabal’s attempts to bring those evil designs to fruition.
However, in the gold sector, having tasted recently of higher prices for their beloved yellow metal, investors and others are beating the drum loudly and vigorously about negative events that they think will send gold prices to the moon and make them rich.
Unfortunately, for them, their expectations for gold are not fundamentally sound.
REAL GOLD FUNDAMENTALS
The proclivity of reference to the demise of the U.S. dollar seems belated. The U.S. dollar has already lost more than 99% of its purchasing power since its destiny was entrusted to the Federal Reserve more than a century ago. At this stage of the game, though, there is no shortage of concerned individuals telling me how to protect myself against the coming collapse in the dollar. Don’t look now, but the collapse has already happened.
Yes, the U.S. dollar could lose an additional 99% of its current purchasing power. But, how long will it take? Another century? It took gold more than one hundred years to increase in price by one-hundred fold. Is it supposed to do that again solely in anticipation of a further similar loss in the U.S. dollar?
Okay, let’s assume that there is a complete collapse in the U.S. dollar within the next year or two. And, let’s further assume that gold reflects that collapse in the U.S. dollar by surging in price to $100,000 oz. What do you do?
Should you sell your gold and take your profits? A 50-fold increase in just a couple of years is fantastic, but…
If the U.S. dollar becomes totally worthless, and the gold price is measured in hundreds of thousands rather than hundreds and thousands, the dollar price of gold is meaningless. If nobody accepts dollars in trade because they are worthless, then you haven’t gained anything at all. What you have done is protect and preserve your purchasing power.
After the events described above, you still have an ounce of gold. Gold’s value is in its use as money. An ounce of gold at $100,000 is no more valuable than an ounce of gold at $2000, or an ounce of gold at $20.67. It is all about purchasing power.
GOLD BACKING VS CONVERTIBILITY
It is easy to say that a new currency will be backed by the gold holdings of the nations involved. It is also possible to verify that the gold is held by those same respective countries. However, without convertibility, there are no practical restraints on issuers of any new currency. Even with convertibility, the element of trust is of paramount importance. The U.S. dollar’s own history tells us that.
The U.S. dollar was once convertible into gold at a fixed ratio of $20.67 oz. Twenty U.S. paper dollars were exchangeable for one ounce of gold and vice-versa. As long as convertibility was available, the U.S. dollar could be considered “as good as gold”.
Active convertibility is a restraint on the government’s expansion of the money supply. If too many dollars are created, the government won’t be able to make the required exchanges on demand without losing more gold in exchange for paper dollars which continue to lose purchasing power. As the money and credit expansion continues, the dollars continue to lose purchasing power. This results in a preference to hold gold rather than dollars.
The redemption of dollars for gold increased and led to suspension/cancellation of gold ownership for U.S. citizens by President Roosevelt in 1934. When President Nixon closed the gold window for redemptions by foreign governments in 1971, the U.S. dollar was left without any vestige of gold backing or convertibility.
Without convertibility, any new currency, even one with the pretense of being backed by gold, is just another empty promise and another substitute for real money, i.e., gold.
CONCLUSION
Do you trust the governments of Russia and China, or any quasi-government authority to institute and maintain any proposed new currency (gold-backing or not) that would be a better alternative to the U.S. dollar? As bad as the dollar is, you aren’t going to get a better alternative from any of the BRICS countries. This is manifestly so, because…
Inflation is the debasement of money by government. All governments inflate and destroy their own currencies.
In the case of the BRICS countries, the proposed new currency is a substitute for a substitute (U.S. dollar) for gold/real money. (Also see Gold Convertibility – NOT Gold Backing)
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
All Hail The Fed – A New Day Dawns
ALL HAIL THE FED!
As investors continue to gobble up stocks and the dollar prices of most assets continue to climb, it would appear that all is well. Concerns about weakening economic activity and recession have been moved to the back burner. Now, the focus is squarely on inflation.
Fed Cuts Rates But Bond Rates Are RISING
FED CUTS RATES, BUT…
Just a couple of weeks ago, on September 18th, the Fed announced a 50 basis points cut in interest rates. To be clear, the announced cut was generally expected and already discounted in the markets. Most markets had risen substantially over the prior two years in anticipation of a change in direction for interest rates, which had risen sharply and then had remained at higher levels until the recent announcement.
Most investors and analysts appeared to be waiting for the Fed to confirm what was already “known and expected”. Reaction to the official announcement was mostly positive as stock prices continued their upward march and mortgage rates declined.
Bond prices, however, peaked at about the same time the Fed made official its latest gratuitous action. Over the past three days, bond prices have dropped sharply, gapping down at the market open each day. Below is a chart of TLT (20+ Year Treasury Bond ETF)…
Since the Fed announcement, TLT has dropped from a 52-week peak of 101.64 to 95.55 at today’s close. That is a drop of 6% in bond prices at a time when other markets are shouting approval of Fed action and extending recent gains. Why are bond rates rising at the very time the Fed is trying to move interest rates lower?
INFLATION? RECESSION?
A singular possibility is that the bond market sees something other markets don’t; at least, not yet. What is likely troubling to the bond market at this time is the threat of a resurgence of inflation; more correctly, the effects of inflation. Cheaper money and credit now, in the short term, could have serious negative consequences later on. Bigger increases in the CPI and PPI will get everyone’s attention.
A peculiar contradiction to the rise in bond rates is the fact that mortgage rates have declined. In other words, mortgage rates are reflecting what might be expected to happen as a result of the Fed’s efforts to engineer rates lower for now. But, that does not explain why bond rates would move opposite to the Fed’s action and intent.
Finally, the bond market may be ahead of the curve with respect to what comes next. Stock investors seem almost oblivious to the reality of accelerating deterioration in the economy. Stock prices will eventually reflect that reality. (see If The Markets Turn Quickly, How Bad Can Things Get)
Also, the bond market might be telling us that rates need to move higher, and remain at a higher level that is more consistent with historical averages. This could happen in spite of the Fed’s efforts to lower rates, regardless of intention and desire. (also see What Happens After A Rate Cut Is Announced?)
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 The Markets Turn Quickly, How Bad Can Things Get?
HOW BAD CAN THINGS GET?
Pretty damn bad. Which means that it will likely be much worse than most of us can imagine. Other than Covid and its forced shutdown of economic activity by governments world-wide, the most recent learning experience for investors is the Great Recession of 2007-09. Beginning in October 2007 and ending in February 2009, the S&P 500 Index lost 53%…
S&P 500 Index 2007-09
Most of that loss (38%) occurred during calendar year 2008. It was the largest single, calendar-year decline since a similar -38% in 1937. Both the NASDAQ (-53%) and DJIA (-50%) declined by similar amounts.
Prior to the Great Recession, post-Y2K markets collapsed in a heap on the heels of the most profitable decade in U.S. financial and economic history. For more than 2 1/2 years, between February 2000 and September 2002, stocks were in a tailspin led by the NASDAQ which declined by 80%. The carnage is pictured on the chart below…
NASDAQ Composite 2000-02
The extent and breadth of the declines and accompanying bankruptcies of hundreds of dot.com companies is rivaled only by the Stock Market Crash of 1929 which is shown on the chart (source) below…
Dow Jones – 1929 Crash and Bear Market
Over an excruciating three years (September 1929 – July 1932), stocks declined by 90%. Stocks did not recover their original pre-crash levels until 1954, twenty-five years after the September 1929 peak. The accompanying economic depression lasted until 1941, although a significant portion of what is termed a resumption of economic activity, was accounted for by war-related industrial activity. Economic conditions on the homefront were characterized by rationing, price controls, and shortages.
WHAT MIGHT CAUSE A MARKET CRASH?
Stock market crashes like those described above don’t happen spontaneously. There are a number of factors which lead to eventual corrections of significance. They include the evolution of normal business and economic cycles, duration and extent of previous stages of those cycles, intervention and manipulation by governments and central banks, the need for corrections and rebalancing due to poor judgement and market excesses, and political and economic factors.
U.S. economic activity has been declining broadly for more than a year or two. That is partially attributable to changes in interest rates which have caused a reassessment of cost factors and undermined the credibility of various investment strategies. The manipulative expansion of cheap and easy credit over the previous four decades resulted in excesses that weren’t fundamentally justified and which distorted the financial landscape. Highly disproportionate availability of cheap credit led to serious misallocation of resources and capital.
In addition, the use of leverage has exacerbated the problem. The unfathomable and unexplainable derivatives monster has the potential to wreak incalculable damage on the financial markets. The use of leverage throughout all markets – stocks, bonds, commodities – and including the use of options, futures, and other more precarious derivatives, currently rivals its pre-1929 use which approached 90%.
The currently added recent market excesses are based on expectations for a return to cheap credit. It is assumed that once the Fed announces a rate cut, that a return to the good old days is right around the corner. As much as a 50 basis point cut is already factored in to current stock and bond prices. What happens when that cut is announced? (see What Happens After A Rate Cut Is Announced?)
MORE ABOUT THE FED
The Fed will likely NOT pursue a series of significant rate cuts UNLESS there is an acceleration of the current decline in economic activity. It makes no sense to simply return to the hell that was brought about by its own intentions and actions previously, and which forced them to try to navigate a return to a more normal and reasonable, higher level for interest rates. On the other hand…
Since the Fed is occupied mostly with slaying dragons which it birthed by its own errant monetary policy, including more than a century of intentional inflation, they are doomed to a life of putting out fires and containing collateral damage. For investors, it is time to wake up to the fact that the Fed is not your financial savior and its purpose and goals, irrespective of any so-called mandates, are not aligned with yours.
CONCLUSION
It is possible that a deepening recession (official or not) could morph into something worse – an economic depression. Even if the Fed cuts rates aggressively, it might not be enough t0 stop the cascading waterfall of lower prices for all assets priced in dollars; including stocks, bonds, commodities, real estate, etc. A collapse in the credit markets such as that which occurred in 2007-08 would likely overwhelm any efforts by the Fed to stop the hemorrhaging.
It would not be unreasonable to see prices decline by 50% or more initially. Further declines would be likely as it is unlikely that an event of this nature at this particular time could be reversed in timely fashion. The prevailing conditions of unemployment and shuttered doors spawned by wholesale financial destruction would be too much for a beleaguered Fed.
It may or may not happen, but investors who ignore the possibility could be in for a shock. I do not consider the likelihood of such an event, or the reaction of the Fed or the government, to be altered in any significant way regardless of November election results. (also see: Default – Deflation – 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
Siren Song Of Gold Mining Shares
GOLD WILL CONTINUE TO OUTPERFORM MINING SHARES
No amount of wishful thinking and baseless proclamations will change that. Owning gold stocks (miners) instead of the actual physical metal (in other words, processed and refined with appropriate hallmarks and in tradable form) is a losing bet. Investors should ignore the siren song of gold mining shares.
Silver’s 50-Year Bear Market
Recent articles trumpeting silver’s outperformance relative to gold and some ridiculous price projections are a bit too much. Missing from most of the extremely positive commentary is a dose of reality. Below are three charts (source) which should provide some needed perspective. The charts show average monthly closing prices (inflation-adjusted) for the periods August 2020 – July 2024; April 2011 – July 2024; and January 1980 – July 2024. Here is the first chart…
Bonds, Stocks, Gold, & Silver – Volatility On Display
The bond market seems convinced that interest rates are headed lower for now. The chart (source) below shows the price action for TLT (iShares Long-term Treasury Bond ETF) over the past seven days…
Of particular note is the fact that the succession of higher opening prices left a series of gaps on the chart. Friday’s gap is the largest so far. Also, the total increase in price from Thursday’s close amounted to more than 3%, and accounts for one-third of the entire seven-day advance.
OTHER MARKETS
Other markets did not fare so well; particularly stocks, which sold off in aggressive fashion on Thursday and Friday. The NASDAQ Composite Index lost 6.7%, while the S&P 500 and DJIA were both down about 4 1/2%. This stands in stark contrast to the sharp increase in Treasury bonds. See charts for all three stock indexes below…
INCREASE IN VOLATILITY
Oxford Languages defines volatility as “liability to change rapidly and unpredictably, especially for the worse.” People tend to focus more on “especially for the worse” when referencing volatility; however, the past two trading days in all markets have highlighted that “rapidly and unpredictably” might be more descriptive and accurate.
In addition to the volatility evidenced in both stocks and bonds, there was a better example on display in the metals markets. In early morning trade spot gold was priced as high as $2478 oz., $32 higher than where it closed the day before. Then, in the space of one hour, the gold price dropped $70 oz. to $2408. Over the course of trading gold rebounded and closed at $2443, down a negligible $3 oz.
Silver’s price action was even more rapid and unpredictable. After rising to a daily high of $29.30 oz, which was up $.84 over its previous close, the white metal dropped nearly 5% ($1.40 oz) during the space of one hour. The daily low was $27.90. Afterwards, the price rebounded to close just a few cents above its prior day’s closing price.
Here are charts for both GLD (SPDR Gold Shares ETF) and SLV (iShares Silver Trust ETF) for the same time period shown in bonds and stocks above…
CONCLUSION
As we said last week: “Rate cut or not, what happens after will not be as expected or intended.” There has been no announcement yet, but the bond market is acting as if it is a done deal. It is possible that stocks are selling off under a similar presumption. Here is why…
Most investors drove stock prices higher in anticipation of rate cuts in the near term, expecting that lower rates would trigger additional economic growth and lead to capital expansion and higher stock prices. Unfortunately, the effects of a potential rate cut are already accounted for in current stock prices. The highly anticipated announcement isn’t likely to have much positive impact on stock prices and could actually trigger more selling. Also, the rapidly weakening economy could override any possible stimulus from the cut(s).
Meanwhile, volatility, i.e., the liability to change rapidly and unpredictably, especially for the worse, can be expected to increase in all markets.
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
What Happens After A Rate Cut Is Announced?
WHAT HAPPENS AFTER A RATE CUT?
Has anybody considered what might happen after a rate cut is announced? If the Fed signals a change in direction regarding interest rate policy, as expected by most observers at this point, does that also signal an end to increasing weakness in the economy? Will a recession be averted (officially or not, we are in one) and employers start hiring again? Will people be able to find full-time jobs at satisfactory pay rates; will housing become affordable?
The expectations are there for a cut before the end of the year, probably by September. It is possible that what happens after that might not be consistent with current expectations. In other words, there is a level of deterioration in the economy (liquidity problems, bankruptcies, empty spaces for lease or sale, etc.) that doesn’t suddenly reverse and restore itself.
Most investors and others are so fixated on the potential rate cut that they likely haven’t given much thought to what comes next. That is, assuming that a rate cut is announced. What if the cut doesn’t come as expected or is delayed indefinitely?
MARKETS HAVE PRICED IN THE EXPECTED CUT
The financial markets have risen significantly over the past two years. Stocks have recovered all of their previous losses resulting from the Fed campaign to increase interest rates, and are sporting new all-time highs almost daily. A rush to the exits could occur from disappointment over any further delay in rate cuts. Then, too, the actual announcement of a rate cut might trigger selling anyway, since the cut is already priced in.
There is another problem, too. A goodly portion of lofty stock index valuations are tied to a few extremely large cap tech stocks. That means that the majority of individual stocks don’t share proportionately in the gains of the index. That is Investors should understand clearly that continued financial and economic weakness or a severely deep recession, along with falling stock prices, could occur whether rate cuts are announced or not.
Bond prices reflect the current level of interest rates. Interest rates are set in the bond market. To whatever extent bond traders or investors disagree with attempts by the Fed to raise or lower interest rates, they can bid prices higher or lower, as the case may be. For example, if the effects of inflation were to worsen considerably from this point, investors would demand higher returns to offset further risk from higher inflation. This translates to lower bond prices and higher interest rates, regardless of Fed desires and intentions.
RISKS THAT CAN’T BE IGNORED
The lasting effects from the 2008 Great Recession were such that attempts by the Fed to pursue cheap and easy credit didn’t have the desired impact. It was more convenient and less risky for banks to park the extra money with the Fed than to lend it. During almost the entire decade leading up to Covid, a weakened economy seemed to ignore all attempts by the Fed, whose biggest concern was getting inflation back up to its 2% target. (see The Fed’s 2% Inflation Target is Pointless)
Over the decades, the desired impact of Fed policy continues to fall short of the mark (see Fed Inflation Is Losing It’s Intended Effect). Whatever the Fed’s intentions, and regardless of how logical the reasoning behind its actions and policies, the economy is slower to respond after each succeeding crisis. In addition, financial and economic volatility increases cumulatively.
The Federal Reserve creates bubbles (stocks in the 1920s; bonds 1982-2022; real estate 2000-2007; everything 2020-24) by intentionally expanding the supply of money and CREDIT – the cheap and easy kind. The bubbles always get popped. There again, the Fed is the culprit. In order to contain the collateral damage of their own profligate monetary policy, more intervention of a harsher nature is usually the answer. Notwithstanding the increase in rates over the past two years, the markets have risen as a result of expectations that the Fed will once again fall off the wagon and provide more cheap lubricant for overly optimistic and addicted investors.
When the Fed became concerned about the almost maniacal obsession with stock investing in the 1920s, it started clamping down on the cheap and easy credit that afforded banks the opportunity to lend as much as 90% of a potential investment to their eager and willing customers. The banks were just as eager and willing, too; until it was too late. The economy had begun to weaken many months before the stock market crashed. The Great Depression that followed lasted for more than a decade and was characterized by 20% unemployment, bank failures, trade tariffs, political instability, and world war in Europe.
CONCLUSION
A rate cut is expected and desired by investors, consumers, and others; almost universally so. It is unlikely at this time that markets and the economy will respond with any vigor if/when that announcement is made. It is very likely that big surprises await those who think otherwise. The possibilities include a severe swoon in all markets which have risen in response to that expectation and as a result of any or all of the other factors mentioned in this article. In addition, there is the possibility that rates could be held at this level longer, or even raised, depending on the specifics of future events.
Rate cut or not, what happens after will not be as expected or intended. (also see Interest Rate Cuts – Salvation Or Damnation?)
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
Descending Price Peaks In Latest Gold Charts
The latest gold charts are pictured below and show a series of descending price peaks dating back to 1980. There are four charts. The first two charts are for the period following the August 2011 peak. The third and fourth charts are for the period after the gold price peaked in 1980. Prices on all charts are monthly average closing prices.
For example, the average closing price for gold in the month of January 1980 was $677 oz. This price ($677) is shown on Chart #3 below. During that same month, the intraday high for gold was $843 oz. The spike in price above $800 was very short-lived and not a reliable indicator of where gold traded during the month of January 1980. Average closing prices are more representative and more realistic for comparative purposes and analyses.
There are two charts for each time period. The first chart plots nominal prices; the second chart shows inflation-adjusted prices. Here is the first chart…
#1 Gold Prices August 2011-June 2024
The average closing price for gold in August 2011 was $1825 oz. After declining for more than four years, the gold price bottomed at $1060 oz. and began rising. The 2011 high was eclipsed and a new high price for gold was set at $1971 oz. in July 2020. After a sharp decline in 2022, the price of gold rose to another new high of $2327 oz., which is also the current closing price on June 28, 2024. The gold price has more than doubled (119%) since its December 2015 low. That is quite impressive, but, there are some caveats.
Gold’s recent price performance, in total, looks very good if you are short-term oriented. The shouts of joy might be a bit overdone, though, if you have been holding gold since its peak in 2011. In that case, the total price increase for the entire thirteen-year period is only 27%. That is an annualized gain of 1.86%, which is more indicative of a slow-moving wagon, rather than a rocket ship in blastoff mode.
The numbers in both cases are made worse when the effects of inflation are factored in…
#2 Gold Prices (inflation-adjusted) August 2011-June 2024
In Chart #2, the effects of inflation have turned the 2011 high and subsequent new highs in 2020 and 2024 into a series of descending peaks. Each successive peak almost matches, but doesn’t quite reach the previous high point. The total gain of 119% referenced in Chart #1 is almost halved, down to 66%. The meager nominal price increase of 27% is now a net loss (-8%). The $1825 oz. nominal price peak in 2011 correlates to a real (inflation-adjusted) price of $2529 oz. in today’s cheaper dollar(s),
Now, let’s look at gold’s price performance over a longer time period. Here is Chart #3…
#3 Gold Prices January 1980-June 2024
When the gold price peaked in January 1980, it correlated to the effects of inflation that had depleted U.S. dollar purchasing power by 97% over the previous half-century. At $677 oz., the gold price was thirty-three times higher than it was when gold and the dollar were interchangeable, i.e., convertible, at a fixed ratio of $20.67 per ounce. The next major peak for the gold price was in 2011 at $1825 oz., followed by 2020 and 2024. Now, lets look at inflation-adjusted prices dating back to 1980…
#4 Gold Prices (inflation-adjusted) January 1980-June 2024
In Chart #4, the ever-ascending nominal price increases shown previously in Chart #3 are more severely subdued when the effects of inflation are factored in. In addition, both volatility and time become more apparent. While the nominal price of gold continues to rise reflecting actual loss of purchasing power in the U.S. dollar, the gold price in real (inflation-adjusted) terms has yet to exceed any of its previous price peaks; and likely never will. That is because gold’s value is in its use as money and is basically constant.
Each price peak in gold beginning in 1980 and including the peaks in 2011, 2020, and 2024 is a reflection of the intervening loss of purchasing power in the U.S. dollar since the previous peak.
CONCLUSION
After allowing for the effects of inflation, an ounce of gold at $2400 today is no more valuable than it was at $2000 in 2020, or $1825 in 2011, or $677 in 1980. For that matter, the purchasing power of one ounce of gold is the about the same today as it was a century ago when it was priced at $20.67. In other words, if you bought gold at any of those prices and held it until now, you do not have real profits. The higher gold price is not a profit. It represents the dollar’s loss of purchasing power. (There are possible short-term trading opportunities for traders. See Understanding Profit Potential In Gold)
Gold is real money and a long-term store of value. Holding gold provides a measure of protection against depreciating currencies. Over time, the increasing price of gold matches the loss of purchasing power in the U.S. dollar that has already occurred. (also see Gold Has Done It’s Job – Isn’t That Enough?)
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