By Sean Kelly
Why Even Higher Gold and Silver Prices Are Headed Our Way!
It isn’t even close! The numbers are in for July and silver was far and away the best performer of all the major financial assets.
For the entire year 2020 it’s the same thing. Silver is the top performer, followed by gold. And that was before gold moved above $2,000 and silver surged past $25.
Now Washington and Federal Reserve officials are doing everything possible to keep precious metals outperforming.
It’s not exactly like they want gold and silver to outperform everything else. They probably don’t. But they do want to do more of the things that put precious metals across the finish line for the, ahem, gold and silver medals.
Right now, Federal Reserve officials are falling all over themselves urging more government spending.
The president of the Minneapolis Fed was on CBS’s Face the Nation over the weekend, a big spending fellow with the ironic name Kashkari. Besides delivering himself of all manner of virus conquering strategies (did he learn them when he was an investment banker at Goldman Sachs?), Kashkari said that while historically we might worry about racking up too much debt, we don’t need to think about that now.
Don’t worry, Mr. Kashkari. Nobody in officialdom is thinking about it at all. In fact, the Treasury department has just announced that it expects to borrow another $2 trillion between now and the end of 2020!
If so, according to our back of the envelope calculation, the US government will end up having grown federal debt by 23 percent this year.
Meantime along comes another Fed president, this one named Barkin from the Richmond Fed, urging much more. Just weeks ago, Basking was looking across the COVID abyss and calling for more spending on community colleges, digital workforce training, child care and elderly care on the other side. Now he’s not looking across the abyss; he’s calling for more fiscal and monetary support measures now.
Other Fed officials have jumped on the “more free money” bandwagon.
Just so we are clear about this: more free money means higher gold and silver prices. More of the policies that have made silver and gold the number one and two performers among major global financial assets so far this year.
There is a $1 trillion Republican stimulus plan in the works, and a $3 trillion Democrat plan. If that’s not enough, a group of 100 CEOs of major companies, led by Howard Schultz from Starbucks, is pushing for still another longer-term measure that includes federal loan guarantees for businesses.
Now, at the risk of stating what should be obvious, but is often missing in the recommendations of CEOs and cash-carrying Fed officials, is this: every dollar of wealth they want to give away must come from wealth somewhere else. As Milton Friedman famously said, there is no such thing as a free lunch.
So where does the wealth come from?
It comes from you! You’ve probably heard the grifters’ and gamblers’ expression, “If you look around the table and you don’t know who the mark is, it means you’re the mark!”
If you’re wealth is tied up in dollars, you’re the mark!
Because the government has no big pool of wealth from which to draw new spending – quite the contrary, it has a deep hole of debt that it already can’t pay – the wealth for all these new spending plans comes from more borrowing and increasingly from money-printing. And where does the wealth come from that gives freshly printed dollars any value at all?
We think the following illustrates that quite well. It shows the purchasing power of the dollar (the red line) since about the time the US quit using gold as the basis of its monetary system. The purchasing power of the dollar has gone nowhere but down since then.
That is because since they severed the dollar’s tie to gold, there was nothing to discipline their money-printing. The monetary system became untethered from reality.
But printing more money doesn’t create any new wealth. It just shuffles the existing wealth around.
When the authorities print money, your existing dollars lose value to the extent the newly created dollars take on value. That means the dollar in your savings, the purchasing power of your salary, and anything else denominated in dollars loses value.
And as you can see from the red line, the dollar has lost a lot of value.
That lost value or purchasing power of the dollar can be seen in the rising price of gold. Which explains why gold hit a new all-time high last month and has now climbed above $2,000 per ounce.
Now you know why gold and silver have been the top performers among all major financial assets this year. And why it has rocketed past $2,000 and why silver has raced past $25.
And from the spending plans we’ve described, you also know where gold and silver are headed.