"Everything you need to know about gold"
GAS IS CHEAP
It hurts to pay $5 per gallon for gasoline. It hurts more when we are used to paying a lot less for it.
For a brief time during the spring of 2020, the price of regular, unleaded gasoline dropped below $2.00 per gallon. I filled my tank at the time and savored the moment for a couple of weeks.
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.
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.
SILVER COIN PREMIUMS
In 1972, a bag ($1000 face value) of “junk” US silver coins sold for approximately $1300-1350. The average closing price of silver that year was $1.68 oz; hence, the silver content (715 ounces) value was $1200 per bag. The remaining difference was a premium of about ten percent.
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.
SILVER’S BAD BREAK
Bad breaks can be tough to recover from. The process can be arduous and can take a long time. Sometimes a full recovery remains elusive and distant.
Silver has a history of bad breaks over the past half-century. Below is a series of charts that tell the story…
BEFORE ASSET PRICE DEFLATION
Before we talk about asset price deflation, let’s review what happened before 2022.
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.
CONSUMER PRICE INFLATION
We hear the term used often, and I’m reasonably certain that most of those who use it think they understand it; but, is the term itself a correct expression for what is meant?
GOLD STOCKS ARE WORSE THAN GOLD
Gold stocks latest swoon confirms what has been stated and inferred in my previous articles about gold mining shares – namely, gold stocks are a lousy investment.
The original article linked in the preceding paragraph 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?
IF INFLATION IS SO BAD…
Recent headlines have many people despairing over inflation.
A couple of recent examples such as “Inflation Is The Worst It’s Been In Forty Years” and “Consumer Prices Are Rising Rapidly” were followed by “High Inflation Is Here To Stay”.
Just how bad is it? Let’s take a look.