It’s been over three years since I wrote an article, wondering if the dollar would crash. To be honest, I am impressed that the central banking cartel has managed to keep the the system together for as long as they have.
The US Dollar has lost over 96% of it’s purchasing power since 1913. The year the federal reserve act was passed, just before congress went home on Christmas break. Today, you need over $32 to buy as much as your great grandparents could buy with $1. You can feel it when you go to the grocery store, the gas station, and everywhere else.
Words mean things. That’s why Orwell warned us about redefining words, and removing them from speech. Today, most people think inflation is a rise in prices. But that is not accurate. The rise in prices is a function of inflation. Inflation, as with a balloon or a tire, is an increase in the size of the currency supply, or the number of dollars in the system.
In our debt-based, fiat currency system, every dollar on the planet, has been loaned into existence, at interest, and must be repaid. Every year, an amount equal to the principle + interest repaid (liquidated) the year before, must be borrowed into existence. Otherwise, we risk a deflationary depression. A prospect which terrifies politicians, and the central bankers who own them.
The World is Awash in Currency
Inflation is not the primary reason why all empires throughout recorded eventually collapsed. But it is a reliable warning sign. Particularly when you discover that most empires throughout history have fallen because of the following reasons :
- Military overreach – perpetual war for perpetual peace has been going on for decades.
- Administrative corruption – it’s so common that we joke about it, and those who address it seriously, even in literature, are smeared.
- Demographic stress – the intersectional and DEI movements, etc.
- External invasion – tens of millions of illegal immigrants.
- Loss of productive capacity – offshoring our manufacturing.
Monetary debasement, dilution of the currency, inflation, money printing… these are synonyms for what happens as a response to those problems above. And once politicians start printing money the currency in order to paper over these structural weak points… and they ALWAYS inflate the currency, because that’s the easy way to kick the can down the road… the slide into oblivion accelerates.
The pattern is a predictable one: Over-extension → Fiscal strain → Currency debasement → Social instability → Political fragmentation. Inflation is not the match, but it is the gasoline.
What is going on with gold & silver?
Have you noticed the price of gold and silver have significantly increased over the last few months? That is not a good sign. There are some that would try to convince you that “what goes up, must come down” applies to the current gold price as well ($5,205.60/oz as I write these words). But what most people don’t understand, is that this IS the consequence of what goes up, must come down.
For this to make sense, you’ve got to shift your perspective slightly. We speak of gold and silver going up in price, because that’s the lexical standard that we Americans are accustomed to using. And again I say, “words mean things.” This is not by accident.
What I am getting at, is that it’s not gold or silver going up in price that we are witnessing. It is the dollar (and other fiat currencies around the world) going down in value. Precious metals are priced in fiat currencies that are declining in value. So it is only natural that the price should rise. An extreme parallel to this: in 1922, a loaf of bread in Weimar Germany cost 163 marks. By September of 1923 that loaf of bread would cost 1.5 million marks. Just two months later, in November 1923, the price had risen to 200 billion marks. That didn’t “just happen.” Bankers and politicians inflated the currency to pay for the consequences of political decisions (unavoidable though they may have been).
Hereafter, when I speak of gold, I also include silver. You cannot print gold, or issue it in paper form. It must be extracted from the ground through labor and sweat. Then it must be refined, and cast into manageable ingots, rounds, or official mint coins. These chunks of gold have intrinsic value based on its inherent, physical traits that have made it a monetary metal for the 6,000 years of human history.
There are some who will argue that gold has no intrinsic value; that its value is subjective, determined by supply and demand. If that were the case, then the most knowledgeable among us, who have the most power, wealth, and information, would eschew gold in favor of other, more productive assets. Central bank accumulation is what you should be keeping an eye on. Although the US retail gold market is soft (indicating that individual holders of gold are liquidating after the recent price increase), the central bankers are buying more gold than ever.
When Ray Dalio talks, people listen.
Remember the old E. F. Hutton commercial? When people who have great wealth, and have studied history and markets talk about their observations and theories, I listen.
Get to the point Jones, you’re boring me.
- The banks are buying gold hand over fist.
- Ordinary people are selling gold to take profits and pay expenses (in case you hadn’t noticed, things are not getting any cheaper)
- Price suppression of gold and silver by the bullion banks is coming to an end, and is likely to rise significantly, even from it’s current all time high.
Think of a piece of gold as a snapshot of the purchasing power your currency held on the day you exchanged those dollars for that piece of gold. That purchasing power is preserved by the gold, while those dollars you traded for it, continue to plummet in value.
Simply put, gold is financial insurance against dilution of the currency.
In the next installment, I’ll share a little spreadsheet I built, that tracks the prices of gold and silver, as well as the gold:silver ratio.
A word about the ratio
The gold:silver ratio is “the oldest, continually tracked exchange rate in history.” Traders have kept an eye on it from the beginning, to monitor opportunities to profit from the changes in that ratio.
Governments throughout history have fixed the ratio in an effort to keep currencies stable. Washington’s government is no different. The coinage act of 1792 fixed the value of gold at 15 pounds of pure silver to 1 pound of pure gold. I was particularly encouraged by the penalty of death imposed by the coinage act upon the officers of the mint who debased the gold, or embezzled it.
As I said before, gold is an insurance policy, not an income producing asset. However, the gold:silver ratio does offer profit opportunity during times of upheaval.
If I purchase 100 ounces of silver at $25/oz, while one ounce of gold is $2500, The ratio is 100.
However, if the price of precious metals begins to fluctuate wildly, and gold goes to $7500 (an entirely likely possibility with what is going on in the world), while the silver price runs up to $175; the ratio is now 42.85. Which means an ounce of gold will only cost me 43 ounces of silver, rather than 100.
So if I now use that 100 ounces of silver to buy gold, I can buy 2.3 ounces of gold, rather than the one ounce I could buy originally.
And that’s why we watch the gold:silver ratio.
If I could leave you with one last thought, it would be this:
I am not a certified financial planner. However the typical financial planner would probably recommend a little gold, and perhaps some silver for your portfolio. Maybe 5% – 10% as a hedge against inflation, maybe higher if you have more assets to protect. And like most, they’ll offer to sell you stock in a gold or silver fund.
My issue with buying stock in a precious metals ETF is that each ounce of silver has somewhere between 250 – 400 claims against it. While gold (on the Commodity Exchange, or COMEX) currently has about 109 claims on every ounce of gold. Which means…
If you don’t hold it, You don’t own it.
Where I come from:
ENTP | USMC 03 | III% | Park University
"Well traveled, good with a rifle."
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