This article is Part 1 of a series on the massive shift taking place with gold right now. You can read the other parts here: Part 2, Part 3, Part 4.
Have you been following gold lately?
Don’t worry, we won’t blame you if you’ve been ignoring it.
For much of its recent history, it’s been kind of a boring asset.
Something that doomsday preppers and anti-establishment types stockpile waiting for “one day” when society crumbles.
Even if you’ve been actively trading it for the past few years, it’s been kind of a boring asset.
A perfectly timed trade from December 2015 to August 2020 — over 4½ years — would only have nabbed you a 90% gain…
Hardly anything to write home about for that length of time.
Especially as fast moving tech stocks — or the proper speculative options — can gain that much in months, weeks or even days.
But lately, gold’s been flashing a signal that insiders have started paying attention to.
Not only has gold reached a new all-time-high.
It’s been one of — if not THE sharpest — price spikes the shiny metal has rewarded investors with.
But as gold continues rising — and this run shows no signs of stopping — the questions on everyone’s minds: “Why now?”, followed closely by “And when will it end?”
Those are very big questions, but over the next week, we’ll attempt to answer them in a series of articles right in these pages.
The very first thing we’ll say is that in 1971, an ounce of gold was worth $35, officially set by the 1944 Bretton-Woods agreement.
That year, John Lennon’s “Imagine” topped the music charts… Bell bottoms were all the rage… And a teenager out with his friends on a Saturday night could grab a burger, fries and a Coke for under a dollar.
A college freshman could expect to pay around $1,500 a year in tuition… while a reliable used car could be found for $1000 to $2,000… and the American Dream of home ownership was fairly attainable for many middle-class families.
See where we’re going with this?
If you guessed inflation, you’re right.
But the interesting part is how that inflation has crept in.
It’s less about the growing cost of goods and more about the shrinking value of the dollar.
See, in mid-1971 then-President Richard Nixon officially took the U.S. off the Gold Standard, which, until then, had pegged the Dollar to gold at a rate of $35 per ounce.
Once that link was broken, the stage was set for the dollar to lose significant purchasing power over the coming decades.
Turns out they didn’t call Nixon “Tricky Dick” for nothing…
During the speech announcing the end of the Gold Standard (coincidentally, delivered on a Sunday when financial markets were closed), he said:
“…your dollar will be worth just as much tomorrow as it is today…”
But anyone who knew anything about money and the history of currencies probably instantly thought of 18th century French philosopher, Voltaire, and his quote:
“Paper money always returns to its intrinsic value — zero.”
Voltaire’s quote highlights the risk Nixon took in cutting the dollar’s link to gold that day in 1971.
By moving to a “paper money” system, also known as a fiat currency, the dollar’s value became based on faith rather than backed by a hard, limited asset.
In the decades since, the Dollar Index has plummeted by over 80% as more dollars have flooded the system.
This consistent devaluation through inflation is one reason why gold has surged from $35/oz to recent all-time highs over $2,400/oz.
As a hard, finite asset that cannot be artificially replicated, gold has maintained its purchasing power while the ever-increasing dollar supply has caused a decline in the currency’s value.
Clearly, Voltaire’s concerns about the dangers of unbacked paper money were well-founded.
And Tricky Dick’s assurances about the dollar’s worth proved dramatically misguided, to put it kindly.
In this opening article, we’ve just scratched the surface on gold’s recent explosive rally.
By the end of this series, you’ll understand why even though gold has surged to all time highs recently…
There’s no reason to believe it will slow down anytime soon. And with all the forces acting on gold, it could very credibly hit $25,000 per ounce! (even higher by some measures)
Intrigued?
Stay tuned as we peel back the layers on this newly vital asset class.
— The Jeffry Turnmire Trading Team
P.S. This article is Part 1 of a series on the massive shift taking place with gold right now. You can read the other parts here:
