Why Are Gold Prices Are Jumping Around? Is Gold Really An Investment?
The 2000 dot-com crash, the events of 9/11/2001 the 2008 bank bailouts turned the investment world upside down. The Federal Reserve injected trillions into the financial system. “Too big to fail” banks were bailed out – not broken up. The negative effects of these decisions have now arrived.
Historic cheap credit-fueled reckless government and private spending, tripling total public and private debt. When lenders wouldn’t lend at stupid low rates, the Fed created money out of thin air, with little regard for the negative consequences.
Since 2000, total US debt has gone from $27 trillion to $100 trillion. The Fed, finally fearing the inevitable inflation would spiral out of control, raised interest rates back to the historic normal, around 5%.
When government spends money it doesn’t have, it creates inflation. John Williams, shadowstats.com provides true inflation charts. If inflation was calculated today as it was in 1990 it would be reported much higher than the current government gerrymandered number:
Adrian Day explains what’s happening:
“Inflation is far from vanquished. The latest reading of the core PCE—the Fed’s preferred inflation measure—showed a month-on-month increase of 3.7% annualized. That’s close to twice the Fed’s arbitrary 2% target. But the situation is worse than that of course.
Most consumers think the notion of a cost-of-living index that excludes food and energy is nonsensical to begin with.
And even using the government’s figures, we see inflation slowly moving back up. This will likely continue.”
After the bank bailouts, I’m convinced inflation is inevitable and gold would be the ultimate hedge. What baffles me is what took so long? Gold prices have jumped all over the map – why?
Since 2020 federal spending has jumped over 50% and government reported inflation jumped around 9%. Gold began 2020 around $1520/oz. and closed the year at $1895. In January 2023 it opened at $1824, hit an all-time high of $2152 in November, then sharply dropped almost 10% – finally closing the year at $2063.
Double digit inflation arrived, historic deficit spending and money creation is rampant, we are involved in two significant international conflicts; yet gold trades in a fairly close range.
I’m trying to understand the crazy price movements.
I contacted friend, and gold expert Rich Checkan, President of Asset Strategies International.
In your December newsletter, you explain:
“The world is realizing that U.S. debt is a bad investment, Congress has no desire to balance a budget…no desire to live within its means.
…. Central Banks have been supporting the gold price for the past two years. In 2022, they bought more gold than at any time in the past 60 years. In 2023, they are on pace to buy more than in 2022.
That buying has given a strong and resilient base of support for the gold price.
However, I truly believe the market needs the support of investor buying before it can move significantly above current levels AND maintain those higher prices.”
Rich, central banks are buying gold hand over fist, isn’t that a strong indication they expect inflation to get worse? If they see this, why aren’t they advising their clients to take heed?
RICH: Dennis, thanks for having me. I’m happy to shed whatever light I can.
There are several reasons Central Banks are moving out of U.S. dollars and into gold. The two main reasons given in a recent survey were:
- Gold’s performance during times of crisis
- Gold’s role as a long-term store of value.
I believe Central Banks are demonstrating what we should all be doing. However, their clients – the governments they serve – aren’t listening, are addicted to debt, and appear unwilling or unable to change their ways.
DENNIS: I asked, “Is Gold Really An Investment?” Many experts explain the gold price as a reaction to world events, etc. Yet events happen, which logically should move the price, and nothing happens.
I wanted to see if gold is really an inflation hedge. I used the US Inflation calculator and entered the price of gold on 1/1/2000 ($282.05).
I then ran the 2008 price ($840.75), I was astonished!
Despite agonizing and wild price swings, gold has handily beaten the government-reported inflation, closing the year at $2063.
Rich, I’ve realized gold is a different type of investment. I’m not trading gold hoping to make a profit and use the money to buy stuff.
Isn’t an investment in gold protecting what we have? If one has $100,000 in CDs and inflation is 8%, they lose $8,000 in buying power over a year? Am I missing something?
RICH: You’re not missing anything. The interest rate on the CD, minus the rate of inflation, minus taxes, is the real return. Since 2008, generally the return has been negative.
Yes…gold is different. As your analysis shows, it’s the world’s only known, liquid store of purchasing power for millennia.
Gold holds purchasing power as the fiat currencies, which are the scorecard, lose their purchasing power. Gold allows you to freeze your purchasing power at the moment you buy.
It’s why our motto is “Keep What’s Yours!” You do so, by owning gold.
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DENNIS: These comments concerned me:
“Premiums have been falling for gold and silver products, and the World Gold Council recently announced a year-on-year decline in bar and coin demand (what investors buy) of 14%. Premiums don’t fall, and bar and coin demand doesn’t slip when investors are buying hand-over-fist.
Dealers have reported small investor liquidations since July. Personally, I believe this is a sign of how stressed the individual consumer is right now.
…. Spending is up because consumers are buying exactly what they bought last year – their needs. But this year, everything is more expensive.
Further, I believe the liquidations of gold and silver dealers are seeing is an indicator that consumers need money to make ends meet.
They will not tap into home equity to refinance because that would cause their interest rates to climb from 3% to 8%. And, as we have seen by the record level of credit card debt topping $1 trillion, consumers have already maxed out their credit cards.”
That’s scary! I get the stress of having bills to pay and maxing out credit cards. Consumers may not be buying gold, but the central banks are, expecting things to get worse for the USD.
I hope I’m never forced to sell our gold. It must be terribly stressful for those you described. Is now really the time to be selling gold?
RICH: Gold stores value, with high liquidity, for a potential financial crisis you hope to never have. If you have a crisis (like bridging the gap to maintain shelter and put food on the table), and your only option is rewriting a mortgage or selling gold, don’t hesitate – sell.
I believe we’ve been seeing this to some extent since July.
Personally, I am a buyer. I feel those saying hold off because the price is near all-time highs are making a mistake. We’re getting set for the next leg up in this bull market. We’ve had several years of consolidation, preparing the way for higher prices.
Those who are waiting will wish they had bought at today’s prices.
DENNIS: One final question. Each year we see wild gold price predictions. One pundit recently predicted $15,000/oz, by 2026. Often, these come from dealers urging, “buy now, don’t miss out!” In 2020 gold jumped 24%, and then lost ground the next two years. What’s realistic for 2024?
RICH: I also saw that prediction. I hope to God it doesn’t happen. If it does, we will have a long list of major problems to deal with.
I am not a cheerleader for gold, I don’t have the legs for it (pun intended). I believe in gold as wealth insurance for portfolios big and small. I expect gold will continue to do what it has always done…steadily march higher in terms of mismanaged fiat.
As wealth insurance, gold’s price should be immaterial. If you’re buying it for the right reasons, there is no wrong time or wrong price.
Prediction? I’d be surprised if gold didn’t reach $2,500 in 2024, and, quite possibly $3,000, once mainstream investors get back into the gold trade. As your analysis showed, gold prices may jump around, but continually beat inflation over the long haul. Thanks for the opportunity to address your readers.
I look at gold as an investment in protecting your future. Retirees, in particular, are concerned about maintaining their buying power and lifestyle for the duration.
An everyday example – We hosted friends on New Year’s Eve. Everyone loves my wife Jo’s meatloaf; good old southern Indiana cooking.
Check out this website comparing inflation and food prices. I went back 10 years:
“Between 2013 and 2023: Ground beef experienced an average inflation rate of 3.39% per year. This rate of change indicates significant inflation. In other words, ground beef costing $3.82 in the year 2013 would cost $5.33 in 2023 for an equivalent purchase.”
If your gold investment buys 100# of ground beef today, gold will help it buy 100# in the future. I don’t want Jo to have to change the recipe down the road to make it cheaper!
|Editor’s note: I’ve been a client of Asset Strategies International for well over a decade. While I’m a customer – I have no other financial arrangement with them of any kind, no referral fees, kickbacks – nothing.
They are true precious metals experts, straight-shooters, and I’m happy to give them a forum in exchange for sharing their expertise for our readers benefit.
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On The Lighter Side
Last week I went in for my last radiation treatment. We now wait until April for the next scan, hoping that all the cancer is gone…just like before. My radiation treatment was a simple process, 10 minutes on a table while a machine makes whirring noises and that is it.
What’s amazing is how much fatigue is the result. Last time it took a couple months for me to get back to a reasonable energy level. Taking a daily nap is a small price to pay to be able to continue to watch our family continue to grow and prosper. I hope to be able to attend a lot more graduation ceremonies down the road.
I generally send my articles to production on Monday so the outcome of the college football championship isn’t known. I’m hoping for a good game. I’m impressed with Washington quarterback, Michael Penix, Jr. and hope he does well. He looked to me like a top draft pick.
Quote Of The Week…
“Gold is unique among assets, in that it is not issued by any government or central bank, which means that its value is not influenced by political decisions or the solvency of one institution or another.”
— Salvatore Rossi, Central Bank of Italy, 30 Sept 2013
|Many readers are Chuck Butler fans, as I am, and have not received his Daily Pfennig the last few days. They are having some production issues. Check his website as he is writing each day. Hopefully he will be back our inbox soon.
As we roll into 2024, Jo sent me some Facebook wisdom titled “After.” I don’t know who wrote it, but it speaks for me…
Barely the day started and… it’s already six in the evening.
Barely arrived on Monday; it’s already Friday and:
- the month is already over.
- the year is almost over.
- already 40, 50 or 60 years of our lives have passed.
- we realize that we lost our parents, friends.
- and we realize it’s too late to go back…
So… Let’s try, despite everything, to enjoy the remaining time…
Let’s keep looking for activities that we like…
Let’s put some color in our grey…
Let’s smile at the little things in life that put balm in our hearts.
And despite everything, we must continue to enjoy with serenity this time we have left.
Let’s try to eliminate the afters…
I’m doing it after…
I’ll say after…
I’ll think about it after…
We leave everything for later like ‘after’ is ours.
Understand that Afterwards:
- the coffee gets cold…
- priorities change…
- the charm is broken…
- health passes…
- the kids grow up…
- parents get old…
- promises are forgotten…
- the day becomes the night…
- life ends…
And then it’s often too late….
So…. Let’s leave nothing for later….
The day is today…. The moment is now…. Go, enjoy, and do what needs to be done!
Until next time…
“Economic independence is the foundation of the only sort of freedom worth a damn.” – H. L. Mencken
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