Short and Sweet
The Great Financial Shock of 2022
Today’s headlines serve as a constant reminder of why we own gold

cartoon image of an investor experiencing headline shock

Inflation, it has been said, comes as a thief in the night, and that it has. The famed British economist John Maynard Keynes warned of the dangers impressed upon an economy by inflation in his 1919 classic, The Economic Consequences of Peace. “Lenin was certainly right,” he wrote. “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” Now we are suddenly faced with what could very well go down in history as the great financial shock of 2022 – an inflation rate approaching double digits in just a few short months and a steady stream of headlines that serve as a constant reminder of why we own gold.

“The nature of inflation is widely misunderstood and misinterpreted,” writes former Wall Streeter Dave Kranzler in an analysis posted at Investing.com.  “‘Inflation’ and ‘currency devaluation’ are tautological — they are two phrases that mean the same thing.…Dollar devaluation has been occurring since the early 1970s. The value of the dollar relative to gold (real money) has declined 98%. In 1971, $40,000 would buy a 4,000-square-foot home in a good suburb. Now it takes $700,000 on average to buy that same home. Price inflation is evidence of currency devaluation.”

Though the dollar has been in an uptrend against other currencies of late (recently hitting a twenty-year high and pushing the gold price sharply lower), its purchasing power in terms of goods and services is in sharp decline – and that, in the end, is the real reason why gold is now in such high demand. Kranzler says that the inflation wildfires are just getting started and to “hold onto gold and silver.” Similarly, veteran market analyst James Turk recently made some insightful comments during an Epoch Times interview on why gold has long served as a hedge against currency debasement.

“[Gold] does not suffer from entropy,” he said,  “It cannot be destroyed. All the gold mined throughout history still exists in its aboveground stock, which if formed in a cube could slide under the arches of the Eiffel Tower.…A gram of gold buys essentially the same amount of crude oil as it did in 1950. This result occurs because the aboveground stock of gold grows by approximately the same rate as world population, causing the supply and demand for gold to remain in balance with the supply and demand of the goods and services humanity needs. Nature provides everything humanity needs to advance, including money.”

Below, we offer two charts supporting the Kranzler/Turk argument. The first shows the performance of gold against the long-term decline of the dollar. The second shows the sharp acceleration in that decline over the past 12 months – a period during which the dollar has lost a stiff 8% of its purchasing power.

overlay line chart showing gold and the purchasing power of the dollar in log scale 1971-jan22

line chart showing purchasing power of the US dollar in percent 2017-present
Sources: St. Louis Federal Reserve [FRED], U.S. Bureau of Labor Statistics


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Short and Sweet
‘No one questions its value. . .’

image of a Croesus Lydia stater“No one refuses gold as payment to discharge an obligation. Credit instruments and fiat currency depend on the credit worthiness of a counter-party. Gold, along with silver, is one of the only currencies that has an intrinsic value. It has always been that way. No one questions its value, and it has always been a valuable commodity, first coined in Asia Minor in 600 BC.” – Alan Greenspan, former chairman of the Federal Reserve


Image courtesy of the British Museum Collection/Lydia, croesid, ca 550 BC


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Short and Sweet
New smart money queues up in the gold market

graphic image of investors queuing up

First institutions and funds came over to gold’s corner, then central banks. Now, one of the more important stories in the gold investment arena as we begin 2021 is the developing interest among a whole new grouping of professional investors – pension funds, private wealth management, insurance companies, and sovereign wealth funds. “It’s a bit like what happened to big tech,” says highly respected economist Mohammed El-Erian. “People like [gold] because it’s defensive. People like it because it’s a reflation trade. People like it because it’s inflation protection.  What we are starting to see with the narrative about gold is starting to be like the narrative about big tech.  It gives you everything.” These groups bring considerable purchasing power and market savvy to the table. One immediate result might be more buying interest on price dips.  Another might be a better blend of investment psychology and objectives that could have a settling effect on the market overall.


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Short and Sweet
Inflation is a process not an event
But history, as we are learning now, shows runaway inflation can come suddenly and without warning

graphic image showing decline of the denarius over 200 y ears

Image courtesy of Visual Capitalist • • • Click to enlarge

We sometimes forget that inflation is a process rather than an event. One of the better-known examples of that axiom is the nearly two centuries-long debasement of Rome’s silver denarius. The Roman citizen who had the wisdom to hedge that process by going to gold at nearly any point along the way ended up preserving some portion, if not all, of his or her wealth. Those who did not suffered its debilitating effects. In the inflationary process, the line between cause and effect is not always a straight one, and its timing difficult to discern. History teaches us, though, that when runaway inflation does arrive, it comes suddenly, without notice, and with a vengeance. That is why it pays to view gold as a permanent and constantly maintained aspect of the investment portfolio. “A change of fortune,” Ben Franklin tells us, “hurts a wise Man no more than a change of the Moon.”
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(Related please see:  News & Views Special Report / March 2020 / Hedging the decline and fall of a currency – The baseline case for gold hasn’t changed much in 1700 years)

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Short and Sweet
The coronavirus pandemic will forever alter the world order
‘Many countries’ institutions will be perceived as having failed.’

photo of Henry Kissinger making a point

In a Wall Street Journal editorial published in April 2020, former Secretary of State Henry Kissinger warned that the pandemic had created “political and economic upheaval that could last for generations” and that this crisis is even more complex than the one that began in 2008. “When the Covid-19 pandemic is over,” he says, “many countries’ institutions will be perceived as having failed. Whether this judgment is objectively fair is irrelevant. The reality is the world will never be the same after the coronavirus.” If global authorities – governments and, in this case, central banks – will be perceived as having failed, then what will be the knock-on effect in financial markets that have leaned heavily on their largesse since 2008? The new normal may be in the process of being replaced by a new abnormal that every investment portfolio should take into account.

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Short & Sweet
Gold’s secular bull market: 2003-2022
‘Each price correction and consolidation period has been a buying opportunity’

Veteran commodity analyst  Andrew Hecht recently revisited an instructive chapter of gold history to point up the metal’s long-term value as a portfolio inclusion for both governments and private investors. “The last government to doubt gold’s value got burned,” he says in a report posted at Seeking Alpha. “At the turn of this century, the United Kingdom decided to part with one-half of its gold reserves. Ironically, London is the hub of the international gold market, so the UK sent a signal that gold had seen better days. In a series of auctions, the UK sold around 300 metric tons at prices mainly below the $300 per ounce level. Since 2003, gold never traded below $300 per ounce. Since 2010, the price has not ventured below $1,000, and since 2020, the price has remained above $1450 per ounce. … In 1999, gold reached a bottom at $252.50 per ounce. Since then, each price correction and consolidation period has been a buying opportunity in gold. The over two-decade-long bullish trend continues to take gold to higher highs.”

Gold price
(Weekly, 2000-2022)
line area chart showing gold price 2000-20222
Chart courtesy of TradingView.com

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Short and Sweet

For the record……
Gold in the age of inflation
The star investment of the fifty-year era and the most reliable store of value

photograph of Richard Nixon conduction meeting of his cabinet in 2971

“Remember what we’re looking at. Gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can match it.”
Alan Greenspan, November 2014

On Friday, August 13, 1971, then-president Richard Nixon, after a secret meeting at Camp David, devalued the dollar, suspended gold convertibility, and thereby launched the fiat money system and the age of inflation. Shortly thereafter, the president commented, “we are all Keynesians now.” (Please scroll to “The great Keynesian coup of August 1971” for more detail.) It is a notable coincidence – perhaps even fitting – that we would mark the 50th anniversary of the “Nixon shock” on Friday, August 13, 2021. To mark the occasion, we reprint the following from the July 2021 issue of News & Views, our monthly newsletter:

There has been considerable, and some would say tedious, discussion on the subject of inflation over the past several weeks. The Fed wants it. The markets await it. Investors and consumers worry about it. If it does come, the Fed thinks it will be transitory. Others believe it will persist. That said, the current discussion ignores an established historical reality: We already live and have lived with it for a very long time. The Age of Inflation began in August of 1971 when the United States disengaged the dollar from gold and ushered in the fiat money era. Thereafter, the inflationary process has progressively eaten away at our wealth and the purchasing power of our money. Now, some of the best minds in the investment business tell us that it is about to accelerate and that if we ignore it, we do so at our own peril.

To mark the occasion of the fiat money system’s golden anniversary, we offer two instructive charts. One is something of a myth-buster in that gold has decisively outperformed stocks during the fiat money era. Many will be surprised to learn that gold is up 4,500% since 1971, while stocks have played second fiddle at 3,375%. The other reveals at a glance the pernicious, ongoing debasement of the dollar and gold’s role as a hedge against it. The dollar lost 85% of its purchasing power since 1971, while gold, as just mentioned, gained nearly 4500%. If that does not serve as vindication of gold’s portfolio role in the era of fiat money, I don’t know what will. At the same time, consensus has it that cyclically, stocks are closer to a top than a bottom, and gold is closer to a bottom than a top.

Gold and stocks price performance
(In percent, 1971-2021)

area charat showing gold and stocks 1971 to June1 2021 in percent
Chart courtesy of TradingView.com • • • Click to enlarge

Gold and the purchasing power of the dollar
(1971 to present)

overlay area chart showing the value of the dollar and gold since 1971
Sources: St. Louis Federal Reserve [FRED], Bureau of Labor Statistics, ICE Benchmark Administration • • • Click to enlarge


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Short and Sweet

headline for nine lessons from prosperous investors

We first introduced our readers to these nine lessons all the way back in 1999. They were passed along to us by the legendary commodity market analyst R.E. McMaster, formerly editor of The Reaper newsletter. The original source for the nine lessons was a highly regarded money manager who handled accounts for wealthy Greek and Mexican merchant families.

1. It is easier to make a fortune than keep it.

2. Intelligence is an inadequate substitute for wisdom. Wisdom fears, respects the unknown and fosters humility. Intelligence can lead to self-destructive arrogance and ultimate failure.

3. Risk must have premium, and we must understand it well.

4. There is no order. There is no formula. There is no equation that works all of the time. It works just long enough to fool just a few more of us just a little longer.

5. What we fail to remember is that a paper gain is just that. Paper. Worth nothing. Not until we say sell, and not until we get cash. Anything less is just that.

6. When the Bass Brothers in Texas write a check for real money, their money, to buy 25% of the Freeport McMoran Gold Series II, we take notice. When the Fidelity Magellan Fund buys a fifty-million in Dell computer, we yawn. So, should you. It is other people’s money.

7. Slick advertising budgets, powerful computers and few slabs of marble do not, by themselves, make a great financial institution.

8.  Never invest in anything you do not feel comfortable with or understand well.

9.  When a thousand people say a foolish thing, it is still a foolish thing.


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Short and Sweet

Structuring your portfolio for the rest of the 2020s

“Precious metals are and always have been the ultimate insurance,” says Pro Aurum’s Robert Hartman in an interview with Claudio Grass. “They provide protection both against state failures and against mistakes in the monetary policy of the central banks. Every investor who looks into the history books sees that both have happened over and over again in the past centuries. From that perspective, investing in physical gold and silver is a common-sense precaution and a necessary part of any wealth preservation plan. Investors and ordinary savers ignore this at their peril and the failure to include precious metals in one’s portfolio is pure negligence.”

cartoon showing the three pigs building their houses out of euros dollars and gold

There are essentially two broad schools of thought alive and well in the gold market. The first holds that crisis is around the corner and, as a result, precious metals should be owned to profit from the event. The second holds that crisis is a permanent fixture in the market dynamic and that the portfolio should always include precious metals as the ultimate safe haven. The first buyer sees precious metals as investment products, i.e., buy now and sell later when the time is right. The second considers gold and silver, like Hartmann, as insurance products to be held for the long run. Some combine the two, allocating one part of their precious metals portfolio for trading purposes and another as a permanent, or semi-permanent, store of value. The novice precious metals owner must decide where he or she stands in this regard because it determines, in turn, which products to include in the portfolio and to what degree.

Investors often ask about the percentage commitment one should make to precious metals in a well-balanced investment portfolio. Analyst Michael Fitzsimmons offered an interesting take on that subject in a Seeking Alpha editorial last fall, “Assuming a well-diversified portfolio (which does include cash for emergencies),” he says, “my belief is that middle-class investors (net worth under $1 million), should own at least 5-10% in gold. I also believe that as an American investor’s net worth climbs, the higher that percentage should be because, in my opinion, he or she simply has more to lose by a falling US$. For instance, an investor with a net worth of $2-5 million might have a 15-20% exposure to gold; $10 million, perhaps a 30-40% exposure.” As it has for many years, USAGOLD recommends a diversification of between 10% and 30% depending on your view of the risks at large in the economy and financial markets.


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Short and Sweet

Only real intrinsic money survives the test of time

photo of stacks of gold and silver coins

Here is a timeless observation from the now-deceased Richard Russell (Dow Theory Letter):

“Paper money is now being created wholesale throughout the world. Stated simply, all paper currency is now valued against each other. But more important, ultimately ALL paper is ultimately valued against the only true, intrinsic money – gold. In world history, no irredeemable paper currency has ever survived. Since all the world’s currency is now irredeemable (in gold), this means that in the end, the only form of money that will survive is real intrinsic money – gold. It’s not a question of whether gold will survive, it’s a question of when the world’s current paper money will deteriorate and finally die. I can tell you that irredeemable paper will not survive – but obviously I can’t tell you when it will die. The timing is the only uncertainty.”

The chart below from the World Gold Council speaks to Russell’s point. It shows the performance of various currencies – past and present – against gold over the long term.  When the end comes, as the chart illustrates, it can come abruptly and without warning. For those who stick to the proposition that gold is not really an inflation hedge, or that it is not really a safe-haven against currency debasement, the chart offers instruction. For those who already own gold as a safe-haven, it provides justification. For those who do not own gold, it serves as an incentive.  As the old saying goes:  All is well until it isn’t.

Chart showing gold outperforming all major currencies since 1900
Chart courtesy of the World Gold Council


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Short and Sweet

Gold in the age of high-speed electronic trading

graphic image of tower transferering high speed data represented by beam of light

“The best thing you can do is know how to have a balanced portfolio.”
Ray Dalio, Bridgewater Associates

In an article headlined Robots conquered stock markets/Now they’re coming for bonds and currencies, Bloomberg finance reporter Lananh Nguyen tells us: “In the most liquid equity markets, more than 90 percent of trades are executed electronically, according to estimates from Greenwich Associates. That compares with 79 percent in global foreign exchange, 44 percent in U.S. Treasuries and 26 percent in U.S. corporate bonds, with the most room for growth in the latter two markets, according to [Kevin] McPartland at Greenwich.” [Link] Just this year, Morgan Stanley and Goldman Sachs requested counterparties forgive rogue, machine-driven trades that caused a $41 billion flash crash in a matter of seconds. Though concentrated in a single stock, such anomalous events serve as a cautionary tale on how a full-out, machine-driven panic might evolve on a larger scale.

Because gold does not rely on the performance of another party, it is detached from the matrix of interlocking counter-party risk and occupies a unique place on the financial balance sheet as an asset of last resort and the final arbiter of value.  That is why nation-states and central banks hold large amounts of it on their own balance sheets and why funds and institutions are more and more moving to it as an offset against other trading strategies. Investors have always viewed gold as a reliable hedge against inflation and deflation. In the years to come, they might very well come to know it as an effective hedge against computer-generated financial mayhem as well.


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Short and Sweet

“The first stop of $10,000 is actually not that far away.”

One of the more intriguing analyses of the gold market to emerge in recent months comes from Myrmikan Research’s John Oliver. He inquires into gold’s rangebound behavior under these extraordinary circumstances and concludes, “what propels gold into the multi-thousands of dollars per ounce—is sharply rising rates that destroy the value of the Fed’s assets and make further federal deficit spending impossible. Without a political reason to buy the dollar, it will seek out its economic value.” It’s all in the math, and more specifically, he says that when looking at gold, investors “are going to have to get used to logarithmic scales.” Last January, Myrmikan projected a gold price of $5000 per ounce at some point down the road to give one-third backing to the Fed’s balance sheet. Now, says Oliver, it would take a gold price in excess of $11,000 to achieve the same backing. Consulting projections on gold’s logarithmic chart, he says, “the first stop of $10,000 is actually not that far away.”

Gold and 10-year Treasury yield minus CPI
(Log scale)

overlay log chart showing the price of gold in log scale and the real rate of return
Chart courtesy of Myrmikan Research

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Short and Sweet

Yap stone money inflation

photo of yap stone money in various sizes
Monetarily speaking, everything progressed smoothly on the island of Yap, where large stones weighing hundreds of pounds were transported around to serve as money. That is until something unforeseen happened to the value of the money. For centuries, the stones served in exchange because there wasn’t much of this type of rock on Yap itself.

The depreciation of the stone money began when an enterprising Western businessman realized he could produce stone money cheaply and in copious quantities on a neighboring island and transport it to Yap, where it could be used to procure goods in demand elsewhere. In other words, this oceanic cousin of John Law printed Yap stone money to buy his wares at what might be called a “favorable” discount. By this process, the yap stone money was debased until it became worthless. Little did the citizens of Yap know that they were deprived of their wealth and their money destroyed, by the process of monetary inflation.


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Short and Sweet

Socialist mousetopia regresses to dystopia and finally, extinction

artist rendering of a well-cared for mouse

In a piece written for IFL Science, James Felton offers a riveting account of what exactly happened in the mousetopia of Universe 25. John B Calhoun, a medical doctor at the National Institute of Health, says Felton, “set about creating a series of experiments [in 1973] that would essentially cater to every need of rodents, and then track the effect on the population over time.” It yielded some very unexpected results. Calhoun’s socialist utopia (or, in this case, mousetopia) evolved to a chaotic dystopia and finally an apocalypse, as the norms of mice behavior in the wild completely broke down in what can only be called social chaos. “Soon,” writes Felton, “the entire colony was extinct.” In the opening paragraph to the study, Dr. Calhoun says, “I shall largely speak of mice, but my thoughts are on man, on healing, on life and its evolution. Threatening life and evolution are the two deaths, death of the spirit and death of the body.”

It is difficult to read Felton’s account of what happened in Universe 25 without thinking about the still-developing response to the pandemic-related government support programs on all levels of our society, i.e., the distressing social, psychological, economic, and political upheaval it has induced. Calhoun, according to Felton, “believed that the mouse experiment may also apply to humans, and warned of a day where – god forbid – all our needs are met.” Moreover, Calhoun wrote, “For an animal so complex as man, there is no logical reason why a comparable sequence of events should not also lead to species extinction. If opportunities for role fulfillment fall far short of the demand by those capable of filling roles, and having expectancies to do so, only violence and disruption of social organization can follow.”

By all of this, we do not mean to suggest that contemporary society is headed for a dystopia – though some troubling signs are already present. On the other hand, it would be foolhardy to believe that there will not be modifications to the way our society operates, unintended consequences, and renegotiation (perhaps even radical alteration) of the standing social contract. The general effects on the economy – and ultimately financial markets – are likely to be ongoing with the ultimate results still to be determined. The wise will prepare for the unexpected.

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Short and Sweet

When the United States owned most of the gold on Earth

bar chart showing U.S. gold reserves 1870 to present

Chart courtesy of GoldChartsRUs

Few Americans know that the United States owned most of the official sector gold bullion on Earth just after World War II – about 22,000 metric tonnes or 80% of the world total.  As part of the 1944 Bretton Woods Agreement, though, the United States allowed unrestricted redemptions from its reserves at the benchmark rate of $35 per ounce. Then, in the 1960s, a group of European countries, led by Germany and France, got the idea that U.S. trade and fiscal deficits had undermined the dollar, making gold a bargain at the $35 benchmark price. Steadily over the next decade, they exchanged dollars for gold at the U.S. Treasury’s gold window. By the early 1970s, 14,000 tonnes of gold – or 64% of the stockpile – had departed the U.S. Treasury never to return (See the chart above).

The transfer of gold finally ended in 1971 when President Nixon halted redemptions, devalued the dollar, and freed the greenback to float against other currencies. The era of global fiat money with the dollar as its centerpiece had begun. Gold transformed from its official role as backing the dollar to serving as a hedge against its depreciation. Since that role reversal, gold has risen in fits and starts from the $35 official benchmark in 1971 to a peak of over $1900 in 2011. It is trading now in the $1700-1800 range. For the central banks and private investors who redeemed their dollars for gold at $35 per ounce, the gains have been extraordinary – over 5000% at current prices or 8.2% annually compounded over the 49-year period.  Simultaneously, the 1971 dollar has lost more than 84% of its purchasing power.


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Short and Sweet

Blinded by the Money Illusion

graphic image of a pile of green money

“Would I say there will never, ever be another financial crisis? You know probably that would be going too far but I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will be.” – Janet Yellen, Former Federal Reserve chairwoman

With those words, Janet Yellen, now the Secretary of the Treasury and facing an even worse crisis than the one referenced above, put investors around the world on notice, though probably not in the way she intended. In the past, such smug assurances from public officials have been enough to send contrarian villagers heading for the safety of the nearby woods. The informed student of financial history knows that panics, manias, crashes, and collapses are as common to investment markets as hurricanes to Caribbean beaches. To think that suddenly we have banished their recurrence for ‘our lifetimes’ smacks of the kind of misguided hubris that contributed directly to the 2008 meltdown and subsequent untold financial hardship. Just about the time most everyone comes to the conclusion nothing could go wrong, everything goes wrong …… and in a hurry, as we have discovered over the course of the past two years.


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Short and Sweet

Economic insecurity is becoming the new hallmark of old age

In the United States,” writes Katherine S. Newman and Rebecca Hayes Jacobs for The Nation, “economic security in old age was seen, for a long time, as both a social issue and a national obligation. From the birth of Social Security to the end of the 20th century, the common assumption has been that we have a shared responsibility to secure a decent retirement for our citizens. Yet that notion is weakening rapidly. Instead, we have started to hear echoes of the mantra of self-reliance that characterized welfare ‘reform’ in the 1990s: You alone are in charge of your retirement; if you wind up in poverty in your old age, you have only your own inability to plan, save, and invest to blame.”

line chart showing the stock market's performance 1925-1955

Chart courtesy of MacroTrends.net • • • Click to enlarge

Some compare today’s stock market psychology to the period just before 2008. Others compare it to the 1920s when everything was hunky-dory until suddenly it wasn’t – perhaps a more apt comparison. Too many are “all-in” with respect to stocks in their Individual Retirement Accounts hoping to accumulate as much capital as possible without regard to the potential downside. As the chart above amply illustrates, the stock market did not recover from the losses accumulated between 1929 and 1933 until the mid-1950s, almost 25-years later – a fragment of stock market history lost to time.

Some will rely on the fact that stocks recovered nicely once the Fed launched the 2009 bailout. We should keep in mind though that many prominent Wall Street analysts have warned that the Fed no longer has the firepower it did then. The financial markets and economy are much more vulnerable as a result – all of which brings us back to the notions of self-reliance and taking personal responsibility for our retirement plans. If you find yourself among the group that thinks hedging a stock market downturn to be in your best interest, we can help you effectively structure a gold and silver diversification as part of your retirement plan to hedge that possibility.


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Short and Sweet

730 years of a strong British pound ends
in 1931 with gold standard exit

ovelay chart showing price of gold and UK CPI over 730 years
Sources: Bank of England, ICE Benchmark Administration,
St. Louis Federal Reserve [FRED] •  • • Click to enlarge

This telling chart from the St. Louis Federal Reserve chronicles the history of consumer prices in the United Kingdom from 1209 to present. We added the price of gold to show the direct relationship between declining purchasing power in the British pound and the sterling price of gold after 1931, the year Britain departed the gold standard. Prior to 1931, there was an occasional minor bump higher in the price of gold, but for the most part, it followed along the same flat line as consumer prices.

It was only after Britain separated the pound from gold in 1931 that the price began to move radically higher in terms of the currency. It gained significant momentum after 1971 when the Bretton Woods agreement was abolished. Currencies and gold were then allowed to move freely in international markets. Though interesting from a historical perspective, the real lesson in this chart is that when a nation-state goes from gold-backed to fiat money, gold coins and bullion become a logical and worthwhile alternative for citizen-investors – even after 730 years of relative price stability.


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Short and Sweet

symbolic representation of wisdom as an owl perched on a golden keyThe key to financial wisdom

To fully understand markets, understand gold. It is the key to financial wisdom. By learning of its role as a financial asset, one will discover universal truths about the value of money, and hence, the underlying value of all assets. It does not do much good, for example, to make a small fortune in the stock market, only to see it dwindle (or disappear overnight) in an inflationary storm or an implosion in financial markets. The central tenet to the wisdom of gold lies in its status as the most liquid and widely owned asset that is not simultaneously someone else’s liability.

In 2003, Interest Rate Oberver’s James Grant wrote an essay aptly titled “Value Hedge.” It is a study of gold’s role in the financial marketplace. Though nearly two decades old, that essay still resonates today. “The salient feature of the millennial economy,” he wrote, “is not, as claimed by Greenspan, its complexity, but rather the determination of the Federal Reserve to forestall bad things through money printing. The rich old speculator Bernard M. Baruch forehandedly bought gold and gold shares after the 1929 Crash. Years later, a suspicious Treasury Secretary asked him why. Because, Baruch replied, he was ‘commencing to have doubts about the currency.’ Many are beginning to doubt the strength of the dollar today, as well they might. Following Baruch’s example, they should lay in some gold as a hedge.”

Over the twenty-year period from 2001, while the dollar steadily declined, gold rose from $280 per ounce to a little over $1800 today for a total return of 567%, or just over 10% per year compounded. (Gold reached a record high in August 2020 at $2067 per ounce.) In short, it proved to be more than adequate as hedge against currency depreciation

Grant has refined the message a bit over the years. “Gold,” he said back in May, “is not exactly an inflation hedge, but it is an investment in ‘monetary disorder,’ which is what we have. If I am right, there will be a world that will want tangible monetary stability because it loses confidence in central banks. When the cycles turn, people will want gold and silver. When people consider the shortcomings of the Fed, they will turn to gold.” Lay in a hedge. Financial wisdom need not be hard-won.

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USAGOLD reprinted Mr. Grant’s “Value Hedge” with his kind permission back in 2004 as part of our Gold Classics Series. Here is the link. A subscription to Grant’s Interest Rate Observer, his monthly newsletter, is highly recommended.

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Short and Sweet

“Bear markets are sneaky beasts. . .”

photo of a bear peaking out from behind a tree“Bear markets are sneaky beasts and they like to do their damage as secretly and as unobtrusively as possible. I hate to say it but somewhere ahead, the bears going to get it all together and the innocent little stream is going to turn into a waterfall. What can you do about it? Stay out of the market? Protect yourself by remaining in pure wealth, gold. For thousands of years, silver and gold have been treated as pure wealth. As the standard measures of wealth (stocks and bonds) have deteriorated, veteran investors have forgone profits and moved their assets into pure wealth.” – Richard Russell, King World News, 2016

 King World News called the late, great Richard Russell – who regaled us with his wisdom in the Dow Theory Letter for nearly half a century – “the greatest financial writer in history.” We can only guess what Russell would have had to say about the current state of affairs, but the quote above provides a clue.  Never predictable in his opinions, he was rock solid on one axiom throughout his career – the necessity and transcendence of gold as a permanent component of the well-balanced investment portfolio. As he said, so often, it helped him sleep at night.


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