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One Reason Gold is Soaring: The Fed is Recklessly Fueling Future Inflation

Gold has shot up to a record high. Silver has also gone parabolic in price, rising to $24.85 (a 7-year high), doubling since March 18 (at $12.42) and thereby falling under an 80-to-1 gold/silver ratio, which we had predicted a few months ago. Part of the rise of both metals is due to a falling U.S. dollar. The Dollar Index is down 4% in July alone and down nearly 9% in the last four months, due in large part to the massive printing of fiat paper money.

The Federal Reserve and the U.S. Treasury – with the aid of the spendthrift U.S. Congress – are throwing unprecedented amounts of fiat money (unbacked paper currency) at the coronavirus problem, in a series of four (going on five) multi-trillion dollar stimulus packages to keep the American economy afloat. The Federal Reserve is fighting recession and deflation by fueling the economy with excess liquidity and is thereby sowing the seeds of future inflation – which came about prematurely, as the Labor Department recently said the Consumer Price Index soared 0.6% in June (a 7.2% annual rate).

 

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Gold is Always Gold, but Stock Indexes Frequently Change Names

At times like this, beware of articles that say gold has not done very well, using 1980 as a starting point. As soon as gold retreats below its new high, you will see articles in many major publications saying that gold has not even reached a new “real” after-inflation high. They will say the $850 peak in 1980 is really around $2,500 to $3,000 in today’s dollars but taking any investment’s peak as a starting point is unfair.

 

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1st American Reserve notes that Many Popular Rare Gold Coins Outpace Gold Bullion Gains

Many Popular Rare Gold Coins Outpace Gold Bullion Gains

As of Monday morning, gold was up from $1,515 to about $1,815. In the last six months, gold has moved up $300, while the premiums on some MS-63 $20 Liberties have moved up $600. The premiums on some gold MS-63 $10 Indians have moved up proportionally in that same time span, also outperforming gold Rare Gold coin rise in valuebullion.  Reasons for the rise in premiums are that we had recent large quantity melting of vintage U.S. $10 and $20 denomination gold coins and have seen periodic shortages of classic gold coins that are becoming scarcer. 

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The Adens Declare “Gold is the Best Investment in the World Today”

In their popular financial July 17 newsletter, Pamela and Mary Anne Aden declared gold as “the best investment in the world today” and told their readers “we want you on board the gold train as it pulls out of the station.”  The Adens outlined some of the reasons why: “Gold is, and always has been, the world’s safe haven. That is, during times of uncertainty, insecurity, economic or political upset, war, devaluations and more, gold has always come out as #1. And this track record goes back more than 5,000 years… Throughout history, gold has always maintained its purchasing power, and again, no other investment comes close…. Pamela and Mary Anne AdenPlus, gold is durable and it’s beautiful, which has also made it superior to other mediums of exchange.”  They then go back through history, from the Egyptian pharaohs, who were buried with their gold, through the Roman empire, to the Spanish conquistadors, to the 1849 Gold Rush, the Vietnam boat people; to the present, when we’ve seen gold beat every other investment since 1970, since 2000, and this year, too.

 

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Gold ETF Buying Reached a Record High in the First Half of 2020

Last Thursday’s Wall Street Journal (July 9) revealed that the Gold Council’s quarterly report on gold demand, released this past Tuesday, showed investors poured a net $39.5 billion into gold exchange-traded funds (ETFs) in the first half of 2020, breaking the previous record high set in 2016.  The Journal also reported that Wednesday’s (July 8-) most actively traded futures price closed at $1,820.60, which was only 3.8% below the previous record-high gold futures price of $1,891.90, set during August 2011.

The Journal article states the buying is coming mostly from “skittish” investors driven by a variety of fears “along with ultralow interest rates amid central banks’ efforts to prop up the world economy.” In addition, they wrote, “Precious metals are also getting a boost from unease about November’s presidential election and fresh geopolitical conflicts around the globe,” including tense U.S./China relations, a border dispute between India and China and new tensions in Korea. Another analyst called it a “perfect storm” of crises.

 

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