Effect of Deflation On The Gold Price

by

 The higher price for gold over time reflects the loss in purchasing power of the US dollar. The loss in the dollar’s purchasing power is an effect of inflation.

Over the past century, the US dollar has lost approximately ninety-nine percent of its purchasing power. The loss in purchasing power is reflected in a gold price that has increased one-hundred fold ($20.67 oz.  x 100 = $2067 oz).

The effect of deflation on the gold price is different. To be more accurate, the effect of deflation on gold’s price is opposite to the effect resulting from inflation.

Read more

Gold Stocks – Wishing, Hoping, And Losing

by

GOLD STOCKS – WISHING AND HOPING

As is the case with both silver (see Waiting On Silver) and gold, so too has the waiting game proved to be unprofitable for gold stocks. Wishing and hoping for better results doesn’t change the reality of losing (losing – “failing to gain or retain; being deprived of”).

Read more

Gold – Nothing More, Nothing Less, Nothing Else

by

GOLD – NOTHING MORE

Gold is real money; nothing more. That is a hard pill for some investors and advisors to swallow. Actually, it is the second part of the statement that raises the most concern.

More than just a few people will readily affirm their belief that gold is real money. Beyond that, though, there is a tendency to get carried away with descriptions and analyses regarding “fundamentals” for gold.

Those fundamentals are many and varied; but they have nothing to do with gold or its price.

As the cumulative loss in purchasing power of the US dollar becomes more apparent, and as the price of gold continues to rise, more people take notice.

Investors and consumers are price conscious; which is fine. The problem is that most of them confuse price vs. value.

The only reason the price of gold goes up is to reflect the loss in purchasing power of the US dollar. In other words, the rising price of gold is correlated inversely to the US dollar’s actual purchasing power loss.

Specifically, this means that a higher gold price occurs after the effects of inflation have settled in and taken their toll – not before and not in anticipation of those effects.

Let’s be very clear about something: 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.

Gold’s value is constant and unchanging. That is why gold is the perfect money. Gold is original money and a long-term store of value. (see Only One Fundamental For Gold)

GOLD – NOTHING LESS 

Just as much as it is true that people focus on gold when its price is rising, they tend to ignore and disregard it when the price is declining. They become downright disinterested over longer periods when, in their words, “it isn’t doing anything”.

We are currently seeing some negative response to gold’s “failure to respond” to fundamentals and as a result of gold’s price not meeting or exceeding its expectations.

A similar thing happened after gold peaked in 1980. Many people were convinced that the dollar would be decimated by runaway inflation and that the price of gold would move well beyond $1000 oz (it peaked briefly at $850 oz.).

As the years passed, discouragement found a home and eventually apathy reigned. The effects of inflation became less and less of an obvious issue. Also, the stock market was rising rapidly and the economy was booming.

After twenty years gold was under $300 oz and as low as $250 oz.  It was not uncommon to hear things like “gold is dead” and “who needs gold?”

This was another example of most people’s misunderstanding about gold’s value. Its price had dropped considerably so the inference of a “loss in value” and a “bad investment” were assumed.

However, all during 1980-2000 the US dollar was stable or stronger. With the apparent effects of inflation on the wane, the US dollar found favor on a world-wide basis.

Periods of rising gold prices and a weaker dollar contrasts with other periods of declining gold prices and a stable or stronger US dollar. See the chart below…

 

There are five major turning points for gold’s price that are reflected on the chart. All five  turning points (1933, 1971, 1980, 2000, 2011) 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.

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. We are seemingly in such a period now.

Over the past year and one-half the price of gold has declined reflecting strength and stability in the US dollar. To what extent the decline continues depends on how the US dollar fares.

GOLD – NOTHING ELSE

Whenever I am asked about gold, I preface my remarks by stating that gold is not an investment. Most usually take exception to that proclamation. Some even get angry.

Nevertheless, it is true. Gold is not an investment; nor, is it a hedge against inflation. In fact, even gold is subject to inflation.

Gold’s price is not Influenced by political instability, social unrest, insurrection or war. It does not change in price or value due to headline economic statistics or a weak economy.

Gold is not correlated in any manner to interest rates, the stock market, inflation expectations, etc.

The ONLY reason for the higher price of gold over time is continual loss in purchasing power in the US dollar – nothing else. 

CONCLUSION – 

Believing in false fundamentals leads to unrealistic expectations. Those unrealistic expectations usually end in disillusionment; and they can be accompanied by financial loss.

As far as gold is concerned the entire precious metals arena is awash in proclamations and predictions that have no real fundamental basis.

(also see: The Gold Price And Inflation)

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!

Silver Continues To Fascinate – But Why?

by

SILVER CONTINUES TO FASCINATE 

After scanning some recent headlines regarding silver, I was struck by the apparent fact that proponents of silver seem almost obsessed. If not obsessed, then certainly fascinated.

At one time in my life I shared that fascination. But over the last fifty years, it has become apparent to me that the optimism regarding silver is out of proportion to its role and purpose. Unrealistic expectations for outsized price performance are not supported by fundamentals.

‘Fantasy’ fundamentals such as the gold-to-silver ratio and the gap in consumption over production are not supportable to any arguments in favor of higher silver prices.

No matter how enthusiastically the claims are made; no matter how outlandish the expectations; no matter how fervent the beliefs of investors and marketers; the silver price won’t provide its accommodation.

SILVER 55 YEARS AGO 

When President Lyndon Johnson signed the Coinage Act Of 1965 into law, the price of silver was $1.29 oz. It was still only $1.30 oz. two years later, in 1967.

Suppose you had purchased silver at $1.30 oz and held it for the past fifty-five years (1966-2021). At silver’s current price of $22.50 oz. your investment would have multiplied seventeen-fold.

That works out to be an annual return rate of 5.321%. That is a pretty good average rate of return.

However, when allowing for inflation, the annual rate of return drops to 1.31%.

In inflation-adjusted terms, silver at $1.30 oz. in 1966 is the equivalent of $11.00 oz. in today’s dollars.

In other words, it took 55 years of patience and long suffering just to double your money.

IT COULD BE WORSE

The outcome above assumes you were fortunate enough to buy silver early enough and at its cheapest price. Most investors weren’t/aren’t that fortunate.

Silver’s first big blowoff came in early 1974 when its price hit $6.74 oz. Two years later, in 1976, the price had retreated to $4.00 oz.

Had you purchased silver then, and held it as a long-term investment, you would have a respectable 3.913% rate of return today.

As in our previous example, though, a respectable nominal rate of return is reduced considerably when factoring in the effects of inflation. In this case, the inflation-adjusted rate of return drops to .262%, barely more than one-quarter of one percent.

Fact: Silver at $4 oz. in 1976 is the equivalent of $20 oz. in today’s dollars.

SILVER IS A TERRIBLE LONG-TERM INVESTMENT

There is nothing in silver’s price history that supports claims for unrealistic expectations regarding its price. (see Silver Is Trapped Below $30)

In direct contrast to what some are saying, the long-term is not kind to silver investors. In fact, silver’s price history shows that the long-term works against and not in favor of silver investors. (see Silver Price – 100 Years In The Making)

Below is a chart included in a previous article (Are Silver Prices Really Cheap…) published May 2021…

In reference to the chart, I said the following: ” even on an inflation-adjusted basis most of the price history for silver is still below $20 oz.” 

At the time the article was published, the spot price for silver was $28 oz. In the intervening six months the price has dropped nearly six dollars per ounce down to $22 oz.

CONCLUSION

Silver is far more likely to disappoint investors rather than reward them. Silver’s price history is indicative of that statement. Expectations for higher prices should be minimized.

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 Has Lots Of Potential Downside

by

GOLD HAS LOTS OF POTENTIAL DOWNSIDE

Over the past year, the price of gold has made repeated attempts to move higher. Looking at a one-year price history of GLD in the chart (source) below, there is  a series of progressively lower highs which seems to indicate staunch resistance to higher gold prices…

Read more

Once More With Feeling – Jerome Powell

by

ONCE MORE WITH FEELING

“…try it one more time with feeling
Chairman take it from the top
This one is the big one Jay so give
it everything you got
(You  can) make believe your makin’ me
believe each word you say
Let’s try it once more with feeling
and we’ll call it a day”  

(original lyrics by Kris Kristofferson)

NOTHING CHANGES AT THE FED

The statement may sound obvious given that Jerome Powell has been nominated to continue his reign as head of the world’s most visible central bank. Some might think this is a good thing; and will allow the Fed to steer a course that will bring our economy back from the living dead.

Read more

Even Gold Is Subject To Inflation

by

Yes, even gold is subject to inflation.

Most gold bugs think that a gold standard will solve our inflation problems. While it is true that gold acts as a restraint on governments and central banks desire to create and control money, it does not mean that inflation cannot happen just because gold is the money used.

Read more

Gold Is Not An Investment; Not An Inflation Hedge

by

WHAT GOLD IS NOT

After reading recent articles by others and listening to what continues to pass as ‘fundamentals for gold’, I think it might be helpful to restate, and elaborate on, two specific things which gold is not…

  1. Gold is not an investment.
  2. Gold is not a hedge against inflation. 

Read more

Gold Is Cheaper Now Than In 1980

by

GOLD IS CHEAPER NOW 

Most investors and others who follow the gold market are aware that gold peaked in January 1980 at $850 oz.

Gold is currently priced at $1772 oz., somewhat lower than its peak in August 2020 at $2060 oz.  In either case, the gold price has increased considerably since 1980.

After forty years, though, one might be inclined to ask in all sincerity “Is that all there is?”

The question has merit. In inflation-adjusted terms, gold is actually cheaper today at $1772 oz. by twenty-three percent compared to it’s high in January 1980 at $850 oz. 

Read more

Is $100,000 Bitcoin Possible?

by

Sure; $100,000 Bitcoin is possible; but is it realistic? Is a potential gain of sixty-six percent worth the risk of losing a similar amount or more?

VIDEO GAMES AND BITCOIN 

After spending the better part of a day at the game arcade with two of my sons and a couple of my grandchildren, and amidst all the ringing bells and flashing lights, I found time for some brief reflection.

There seemed to be a huge disparity between the reflected scores and the accomplishments of the various participants.

For example, why is 200 points a “good” score in one game and 1000 points a “bad” score in another game?

We could ask similar questions, I suppose, about the scoring variations in organized sports, too.

Then, I thought about Bitcoin. What makes investors think Bitcoin is worth $60,000? And why is its price so much higher than other cryptocurrencies?

Read more