Gold – A Case Of Unrealistic Expectations

GOLD – WHAT DID YOU EXPECT?

Question No. 1. What’s wrong with gold?

Question No.  2. Inflation is roaring and gold is dropping in price. Since gold is an inflation hedge, why isn’t its price going up?

If you need to ask either or both of those questions, then you are likely suffering from a case of unrealistic expectations involving gold and its price behavior.

WHAT’S WRONG WITH GOLD? 

Nothing. Absolutely nothing.

Only a few months ago, the gold price hit $2043 oz. and reflected a full ninety-nine percent loss in U.S. dollar purchasing power since the origin of the Federal Reserve more than a century ago.

There is only one reason the price of gold increases over time – to reflect the loss in purchasing power of the U.S. dollar. See the chart below…

Gold Prices – 100 Year Historical Chart

The cumulative loss in purchasing power of the U.S. dollar shows up in a continually rising price for gold. As can be seen on the chart, too, there are long periods of time when the price of gold remains relatively stable or declines.

The U.S. dollar price of gold does not tell us anything about gold. It tells us what has happened, or is happening, with the U.S. dollar – nothing else. Lately the U.S. dollar has been quite strong.

The US dollar is in a constant state of deterioration, punctuated with periods of temporary strength and stability. This action is reflected in the U.S. dollar price of gold.

INFLATION IS WORSE; WHY ISN’T GOLD GOING UP?

Gold is NOT an inflation hedge.

Inflation is the debasement of money by governments and central banks. Inflation never stops. All governments inflate and destroy their own currencies.

The higher prices for goods and services that most people focus on are the effects of inflation and those higher prices result from the loss in purchasing power of the currency (i.e., U.S. dollar).

Here are two critical points to remember…

  1. The effects of inflation are unpredictable (see The Fed’s 2% Inflation Target Is Pointless)
  2. Some of the higher prices we are currently seeing have nothing to do with inflation…

Higher prices resulting from supply chain disruptions have nothing to do with inflation; but they do provide a distraction which defers attention away from the real cause (see Simple Facts About Inflation).

GOLD IS NOT AN INVESTMENT

Gold is not an investment. Gold is real money and a long term store of value. It is original money and the measure of value for everything else.

Gold’s value is in its use as money. Period. It is immune and indifferent to wars, political and social unrest, natural calamities, etc.

Radical changes in the price of gold are a reflection of the currency in which it is priced. Again, those changes tell us nothing about gold.

Inflation, or expectations of inflation, do not impact the value of gold. The value of gold is constant and unchanging. (see Gold And Inflation Expectations)

Below is a second chart which shows the same price action of gold as in our first chart, except that the prices in the chart below are adjusted for inflation.

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

Each time the gold price peaked in the above chart, it represented fully the accumulated effects of inflation – the loss in U.S. dollar purchasing power – up to that point. Those peaks will never be exceeded no matter how high the gold price goes.

SUMMARY AND CONCLUSION

The gold price is not declining because the Fed is raising rates. The gold price is declining because the U.S. dollar is strong. As long as the U.S. dollar remains strong, or strengthens further, then don’t expect higher gold prices.

False assumptions based on non-fundamentals lead to unrealistic expectations. For gold investors, the unrealistic expectations can lead to disappointment and financial loss.

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

Gold Is Not Undervalued – Expect Lower Prices

When the gold price declines or doesn’t go up according to expectations, analysts and investors begin looking for explanations. As the price drops further, claims are made that gold is undervalued.

Gold is not undervalued; and we might see further, larger price declines very soon.

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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…

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How Much Is Gold Worth? (Revised and Updated)

HOW MUCH IS GOLD WORTH?

Everyone has an opinion as to what something is worth, whether the object of consideration is their home, a late grandfather’s pocket watch, or a specific stock.

The price of a specific item or asset at any given time is a reflection of all those varying opinions.

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A Recession Is NOT “Good For Gold”

RECESSION NOT GOOD FOR GOLD

Financial writers and gold bulls have both taken their turn at referring to a potential recession as having a positive impact on gold prices. The commentary varies somewhat, but here are a few examples…

“the price of gold would ‘benefit’ from a recession”; “the risk of recession will drive investors into gold”; “a confirmed recession is all gold needs to move higher.” 

The statements above and others like them, stem from the assumption that bad economic news is good for gold. Further (they incorrectly assume), the worse the economy is, the higher the gold price.

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Gold Charts – $1450

GOLD CHARTS

There are four gold charts (source) in this article. All charts are plotted using monthly average closing prices.  I will provide commentary after each chart and then summarize at the end. First chart

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Understanding Profit Potential In Gold

An analysis of any profit potential in gold requires an understanding of gold and its fundamentals. The problem is that most folks do not understand gold or its fundamentals. 

“Most folks” includes investors, traders, speculators, advisors, analysts, marketers, etc.

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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…

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Analysts At Goldman Sachs Are At It Again

ANALYSTS AT GOLDMAN SACHS CAN’T MAKE UP THEIR MINDS

Analysts at Goldman Sachs are now predicting that recession “will push gold to $2,500”. That is an increase of 32% from current levels.

How much confidence can one have in this latest proclamation? Not much; for several reasons.

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Three Questions About Gold Price Manipulation

There are three basic questions that need to be asked, and subsequently answered, regarding gold price manipulation. Here are the three questions:

  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?

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