By Sean Kelly
A hundred years ago a dollar bought roughly 0.05 ounces of gold. Today the dollar buys only 0.000545 ounces of gold.
The gold has not changed, but the last hundred years have been a disaster for the purchasing power of the dollar.
Both gold and silver prices have surged higher this spring, while the US dollar looks grim.
Here are two-year charts of all three. For those of you who are technically oriented, we point out that the price of silver has climbed above both its short-term 50-day (blue line) and long-term 200-day (red line) moving averages, a bullish indicator. This April/May price surge coincides with a widening recognition of inflation’s return to the US economy.
The gold chart is quite similar. It shows a clear advance this spring that has taken gold over its 50-day moving average and poised to break above its 200-day moving average.
The dollar chart is another story, having moved much lower over the last 12 months. It is below both its long- and short- term averages.
While we do not read entrails, we do read the signs of the times.
All of this considered has the appearance of an inflection point, an important turn in the market. Indeed, we suggested repeatedly in this space in March that our friends and clients take advantage of the break in prices to add to their gold and silver positions.
We repeat that advice now. Chart action by itself means nothing, but the Federal Reserve’s creation of $4 trillion of no defined value since late 2019—before Covid hit—provides powerful fundamental confirmation of the higher trend in precious metals
Along that line, we must mention the inflation discussion briefly.
Last week, we made light of the Fed and Biden administration’s talking point that the return of inflation is only transient, temporary. That debate seems to be mostly over. Price signals from far and wide seem to confirm inflation will have a lasting presence in our economy.
Economists of an earlier era, classically learned, would not have fallen for the Powell and Yellen error.
That is because for them inflation was a monetary phenomenon; the term referred specifically to the increase in the supply of money and credit. A rising price was simply a rising price.
We suspect the confusion that has developed, calling an increase in consumer prices inflation, was encouraged by the monetary authorities. They escaped blame for their corruption of the monetary system as people scapegoated others for rising prices. Just the other day, the Wall Street Journal carefully explained that a February storm in Texas is responsible for the rising price of diapers.
Perhaps. But sustained price increases throughout the economy reflect state meddling in, and corruption of the supply of money and credit. They are a powerful argument for acquiring gold and silver for both profit and protection.
It is important to understand why. Please contact us at once to learn more.