The world is getting increasingly dumber, study says

ZeroHedge/Tyler Durden

Cartoon of Alfred E Neuman standing in front of black board with 2+2=5“However, a 2018 study of Norway has punctured these theories by showing that IQs are dropping not just across societies but within families. In other words, the issue is not that educated Norwegians are increasingly outnumbered by lower-IQ immigrants or the children of less-educated citizens. Even children born to high-IQ parents are slipping down the IQ ladder.”

USAGOLD note:  Don’t worry.  Be happy.



Re-post from 5-24-2019

Posted in Short and Sweet |

Short and Sweet

Part 1 of 5. . . . . .

What makes this gold market rally
different from all others


It is led by institutions and funds, not private investors


Global quantitative easing created a huge and mobile pool of capital in constant need of a place to call home. As the need for a safe haven became apparent among the stewards of that capital, the demand for gold flourished. The consistent presence of funds and institutions as buyers in this rally, as represented by the growth in ETF stockpiles, is one of its hallmarks and represents one of the major differences between this gold rally and rallies of the past. Though private investors have been late to the game, the rapid development of the physical market for gold coins and bullion in the United Kingdom is testament to the fact that sentiment can change quickly.

Overlay chart of gold ETF holdings by region and the gold price - World Gold Council

Chart courtesy of the World Gold Council

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Part 2 of 5 . . . . .

What makes this gold market rally
different from all others


Day-to-day price reversals often originate
in Asia and Europe, not just the United States


For decades, the U.S. commodity markets set the tone for gold pricing and the rest of the world was content to follow. Even the old London price fix tended to follow along with trends established in the United States.  That all changed when the Shanghai gold market began offering its own pricing mechanism and the effects of Brexit began to have a profound impact on both sides of the English Channel. Now, price reversals often begin in Asian or European markets overnight and carry over to the open in New York rather than the other way around.  All of this is a reflection of ramped up global investor interest in gold and a leveling of the playing field in terms of who and what influences the price on a daily basis.  As such, it comprises our second important difference between the current gold price rally and rallies in the past.

World Map of gold trading centers - London, New York, Chicago, Tokyo, Shanghai, Dubai, Zurich
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Short and Sweet

Part 3 of 5 . . . . .

What makes this gold market rally
different from all others


Central banks are buyers of physical gold, not sellers.


In 2011 something unusual happened in the gold market.  Central banks flipped from being net sellers of the precious metal to net buyers reversing a 40-year trend.  Since then, the official sector has added 4,563 metric tonnes to their coffers (through the first half of 2019) – a 15% gain in stockpiles to 34,407 metric tonnes.  The gold that central banks take off the market, though, is only part of the story. The rest has to do with how domestic production in two key producing countries – China and Russia (the world’s number one and three producers) – is treated.  Both countries channel their mined metal into national reserves rather than selling it in the global marketplace. Many analysts see this new and evolving approach to gold reserves as the key difference between the present gold rally and rallies of the past.

Bar chart showing central banks switching from gold sellers to gold buyers begnning in 2011

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Part 4 of 5 . . . . .

What makes this gold market rally
different from all others


Bullion banks are covering their shorts on price retreats, not piling-on


Declining global interest rates have put a damper on another traditional source of physical gold supply – bullion bank leasing programs. “We can conclude,” writes gold market analyst, Alasdair Macleod, in an insightful paper published at the GoldMoney website, “that the basis for highly geared interest rate arbitrage by borrowing gold is running into a brick wall. Not only is there no incentive for lessors but also there is also a diminishing appetite for lessees because the opportunities are vanishing. Synthetic gold liabilities are being gradually reduced, not only by ceasing the creation of new obligations, but by buying bullion to cover existing ones. This will have been particularly the case when the USD yield curve began to invert in recent months (itself a backwardation of time preference), and was the surface reason, therefore, that the gold price moved rapidly from under $1200 to over $1500.” This change in direction for bullion banks represents another fundamental difference between this rally in the gold price and rallies of the past.  What’s more, given the entrenched low-rate environment, it looks like it might remain a factor for some time to come.Graphic image of bull and bear, pencil drawing

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Part 5 of 5 . . . . .

What makes this gold market rally
different from all others


Yields in economically important parts of the world
are negative, not positive


Negative interest rates are a reality in both the European Union and Japan, and Alan Greenspan said recently that it is “only a matter of time” before they spread to the United States.  One of the arguments against gold over the years has been that it costs money to own it. Now it costs money to own euros and yen, and before too long it might cost money to own the dollar as well.  The advent of negative rates is perhaps one of the more profound differences between this gold rally and rallies of the past. It might also prove to be the most enduring.  “One of the reasons,” Greenspan added in that same CNBC interview, “the gold price is rising as fast as it is – you know, at $1500 a troy ounce . . . What that is telling us is that people are looking for resources they know are going to have a value 20 years from now, or 30 years from now, as they age and they want to make sure they have the resources to keep themselves in place.”

Overlay chart showing gold and negative yield debt rising in tandem

Chart courtesy of the World Gold Council

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Why the U.S. needs to encourage
Americans to hold gold

Image of coin pile, American gold eagles, one ounce

We have always believed that citizen ownership of physical gold is in the national best interest, not just the best interest of its accumulators.  In the event of a worldwide economic breakdown or a realignment of the global monetary system, it would be good for the country to have a storehouse of gold held by the populace.  China encourages citizen gold ownership for precisely that reason.

“With a growing number of countries encouraging their central banks and citizens to acquire gold,” writes The Federalists Sean Fieler, “it is increasingly reasonable to assume that gold will be part of the world’s monetary future, not just its past. The U.S. Treasury should embrace policies that will attract more of the world’s gold to America and better position our citizens and our nation for whatever the monetary future may hold.”

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The next great monetary experiment

DailyReckoning/Brian Maher

Image of speculators on Paris street, 1717 Mississippi Land Scheme“This MMT sounds like a recipe for immense inflation, even hyperinflation. You are spending all this money directly into the economy. It will drive consumer prices through the attic roof, you say. This is crackpot. A witch’s sabbath of inflation would surely result. Yes, but here the MMT crowd meets you head on… They agree with you. They agree MMT could cause a general inflation, possibly even a hyperinflation.”

USAGOLD note:  Modern Monetary Theory (MMT) is neither modern nor a theory. John Law, the Scottish financier, tried a version of it exactly 300 years ago (1717-18) in France.* He did so with the blessing of the French monarchy and with a rationale very similar to MMT’s proponents today. In the end, Law’s theories (to his surprise if we are to believe the historical account) bankrupted the French people and the government, reduced the economy to ashes, and created such a distaste for paper scrip among the citizenry that it took 80 years for France to reintroduce paper money as a circulating medium.


“The shrewder speculators* became alarmed. They began to sell their shares of stock, and hoard in gold the enormous wealth they had acquired. This resulted in a demand on the government for metal in exchange for its paper, and soon the government had no metal to give. Then the crash came. Those who had the government paper could buy nothing with it. Those who held the Mississippi stock could scarce give it away. It was worthless. The government itself refused to accept its own paper for taxes. A few lucky speculators had made vast fortunes; but thousands of families, especially among the wealthier classes, were ruined.” – Edward S. Ellis and Charles F. Home, The Story of the Greatest Nations (1900)

* Please see this link for a summary of  Law’s Mississippi Company land scheme.


Image by Internet Archive Book Images [No restrictions], via Wikimedia Commons/The Mississippi Bubble, Street of Speculators/The Story of the Greatest Nations/Edward S. Ellis and Charles F. Home (1900)


Repost from 2-4-2019

Posted in Short and Sweet, Today's top gold news and opinion |

Short and Sweet

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The Exter Inverted Pyramid of Global Liquidity

Exter's inverted debt pyramid with derivatives at top and gold on the bottom

“[Exter’s Inverted] Pyramid stands upon its apex of gold, which has no counter-party risk nor credit risk and is very liquid.  As you work higher into the pyramid, the assets get progressively less creditworthy and less liquid. . .[In a financial crisis] this bloated structure pancakes back down upon itself in a flight to safety.  The riskier, upper parts of the inverted pyramid become less liquid (harder to sell), and – if they can be sold at all – change hands at markedly lower prices as the once continuous flow of credit that had levitated those prices dries up.” – Lewis Johnson, Capital Wealth Advisor’s Lewis Johnson

In short, what Lewis Johnson outlines is the bottom-line rationale for diversifying one’s portfolio with gold. For a more detailed analysis of Exter’s Inverted Pyramid, we invite you to visit the May edition of News & Views, our monthly newsletter.


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Two legendary central bankers embrace gold

Image of one-time central bank heads Mervyn King and Alan GreenspanAll is not well with the economy. Growth rates continue to remain stubbornly low in the United States and at recessionary levels in much of the rest of the world.  A recent Gallup Poll found that “Americans’ outlook for the economy has soured in the past two months, with 48% now saying economic conditions are worsening – up from 45% in December and 36% in November.”

In The End of Alchemy (2017), Mervyn King, the former governor of the Bank of England, writes of central banks’ frustration in dealing with the persistently stagnant global economy. “Central banks,” he says, “have thrown everything at their economies, and yet the results have been disappointing, Whatever can be said about the world recovery since the crisis, it has been neither strong, nor sustainable, nor balanced. . . [W]ithout reform of the financial system, another crisis is certain – sooner rather than later.”

“Our problem,” Alan Greenspan once said, “is not recession which is a short-term economic problem. I think you have a very profound long-term problem of economic growth at the time when the Western world, there is a very large migration from being a worker into being a recipient of social benefits as it is called. And this is legally mandated in all of our countries.” The western world, he concludes, is headed to “a state of disaster.”

It is interesting to note that both Greenspan and King, two of the most respected central bankers in modern times, have embraced gold since leaving their respective posts. The former Fed chairman has consistently suggested that gold is “a good place to put money these days given the policies of governments.” The former governor of the Bank of England says that he is “very struck by the fact that over many many years, central banks, governments and individuals have always, despite the protestations of economists, held some gold in their portfolio. . .[W]hen unexpected things happen, particularly when governments rise and fall, then gold is a means of payment that everyone is always prepared to accept. And I think that’s why even central banks have always had a role in their portfolios for gold.”

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Copernicus on the debasement of money

Image of 8¢ stamp depicting Copernicus holding representation of heliocentric earth orbit

“Although there are countless scourges which in general debilitate kingdoms, principalities, and republics, the four most important (in my judgment) are dissension, [abnormal] mortality, barren soil, and debasement of the currency. The first three are so obvious that nobody is unaware of their existence. But the fourth, which concerns money, is taken into account by few persons and only the most perspicacious. For it undermines states, not by a single attack all at once, but gradually and in a certain covert manner.” – Copernicus, Essay on the Coinage of Money (1526)

Few know that Copernicus applied his genius to the insidious effects of currency debasement. The ground-breaking essay linked above probably influenced both John Maynard Keynes (See below) and Thomas Gresham of “bad money drives out good” fame. Supply Side Blog’s Ralph Benko says Copernicus’ essay has been translated into English several times yet those translations remained difficult to obtain for students of the monetary arts and sciences.  It has remained mostly the property of elite historians.” Above we link Edward Rousen’s translation that you might keep company with the knowledgeable elite.

It cost 8¢ to mail a one-ounce letter in 1973 as indicated by the commemorative Copernicus stamp shown above.  It costs 55¢ today – an illustration of his assertion that currency debasement “undermines states, not by a single attack all at once, but gradually and in a certain covert manner.”  The post office increased the cost of mailing a letter by 5¢ – to 55¢ – beginning in 2019.


“By a continuing process of inflation governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.” – John Maynard Keynes, The Economic Consequences of Peace (1919)

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Short and Sweet

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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

“The Flash Boys story put in jeopardy billions of dollars of
Wall Street profits and a way of financial life.”
Michael Lewis

What’s the line in that popular song. . . .  “Are you happy in this modern world?”

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]

“These algos,” said hedge fund guru Stanley Druckenmiller toward the end of last year, “have taken all the rhythm out of the market and have become extremely confusing to me. And when you take away price action versus news from someone who’s used price action news as their major disciplinary tool for 35 years, it’s tough, and it’s become very tough. I don’t know where this is all going.” In other words, human investors have become strangers in a strange new land of computerized trading and investing.

“The best thing,” warns Ray Dalio the famed hedge fund operator, “is don’t play the game, because it is pros against you. We spend hundreds of millions of dollars a year to get an edge, and others do that too. So it’s very difficult for the individual investor to assume that he [or she] can pick something better. The best thing you can do is know how to have a balanced portfolio … because you ain’t going to win that game.” Dalio heads up Bridgewater Associates, the largest hedge fund in the world. He is a long-time advocate of gold ownership and his fund holds a significant position in the precious metal.

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Posted in Short and Sweet, Today's top gold news and opinion |

Short and Sweet

TECH ANALYST
Gold could go to $1800 to $2200 in the long run

A number of technical analysts have reverted to a more bearish forecast over the past few weeks with the $1250 area once again being touted as the downside support area.  Many of those same technical analysts, though, have a significantly more positive outlook for the longer term. Among that group is Gary Wagner of the Wagner Financial Group who sees $1267 or even $1247 as possibilities in the short run, but also forecasts the possibility of $1800 to $2200 in the longer run.  “Our research,” he explains in an article published recently at the Singapore Bullion Market Association website, “suggests that gold is in the final phase of a major long-term impulse cycle. This model also provides a look-back at the final major bullish wave could be traced back to end of 2015, following a correction to $1,040. This corrective fourth wave developed from the all-time high at $1,900 in 2011. The model suggests that gold could re-test the record highs that, if taken out, could see an extensive surge to between $1800 and $2200 per troy ounce.”

Caveat: At USAGOLD, it bears repeating, we have always advocated the ownership of both gold and silver coins and bullion for long-term asset preservation purposes rather than speculative gain.  Though we pass along various projections, we do so with the caveat that anything can happen.  The analyst who forecasts downside today can quickly change his or her outlook to the upside tomorrow – or vice versa.  The long term charts for gold and silver, though, reveal a consistent upward trend that has served investors well in the period since 1971 when the global monetary system departed the gold standard and entered the fiat money era.


Repost from April, 2019

Posted in Gold and Silver Price Predictions from Prominent Players, Short and Sweet, Today's top gold news and opinion | Tagged |

For gold . . .
‘It is not a question of if, but when’

The lesson is one as old as the gold market itself:  The best time to buy is when the market is quiet – a strategy that requires both discipline and conviction.  As an old friend and client used to say (he passed away years ago):  “It is not a question of if, but when.” He accumulated a large hoard of the metal in the 1990s and early 2000s between $300 and $600 per ounce and lived to see his prediction come true.  His estate though was the ultimate beneficiary of his wisdom. He was not one to sell gold once he had acquired it.  We chatted regularly on the phone back then and I told him that I had used the story just told in one of my newsletters.  He was in his late 80s at the time. “Tell them,” he said resolutely, “that I bought my first ounce of gold at $35.”

photo of pile of $20 St. Gaudens gold pieces

The possession of gold has ruined fewer men than the lack of it.”
– Thomas Bailey Aldrich –


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Short and Sweet

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Gold coins, hoofs found in 2,000 year old Chinese tomb

Image of Confucius, old, black and white“Chinese archaeologists. . . discovered 75 gold coins and hoof-shaped ingots in an aristocrat’s tomb that dates back to the Western Han Dynasty (206 BC – 24 AD). The gold objects — 25 gold hoofs and 50 very large gold coins — are the largest single batch of gold items ever found in a Han Dynasty tomb. They were unearthed from the tomb of the first ‘Haihunhou’ (Marquis of Haihun) in east China’s Jiangxi Province. The coins weigh about 250 grams each, while the hoofs’ weights vary from 40 to 250 grams, said Yang Jun, who leads the excavation team.” – Xinhuanet/11-17-2015

USAGOLD note: These gold artifacts were found along with a portrait of Confucius, perhaps the oldest known. Wisdom and gold make easy company. Confucius once said something that has current applicability:  “In a country well governed, poverty is something to be ashamed of. In a country badly governed, wealth is something to be ashamed of.”  Or at the very least, well-hedged . . . . . . . .

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Gold suitably undervalued

Iimage of man dressed in turn of the century fine suit

“The price of a fine suit of men’s clothes,” says the U.S. Geological Survey, “can be used to show anyone who is not familiar with the price history of gold just how very cheap gold is today. With an ounce of gold, a man could buy a fine suit of clothes in the time of Shakespeare, in that of Beethoven and Jefferson, and in the depression of the 1930s.”

So where do we stand in 2019 with respect to The Quality Man’s Attire-Gold Ratio? At Brooks Brothers a top quality, off-the-rack suit ranges between $2625 and $3122 without a vest. Brooks Brothers does carry a less expensive suit at about $1250, but the ratio requires a top (not lower or middle) quality man’s suit. On London’s Saville Row – the standard for quality men’s attire – a hand-tailored men’s suit ranges in price from £3500 ($4620) at Huntsman to £4950 ($6534) at Kilgour (as published in Gentleman’s Quarterly). By any of those measures, gold at just over $1500 per ounce is suitably undervalued.

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Short and Sweet

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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

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Will 2019 be the year of the big breakout for gold?

“In each of the last three years, gold has gotten off to a strong start only to fizzle as the year moved along.  Will 2019 be the year gold finally breaks the pattern? A good many investors, fund managers and analysts think that 2019 might very well be the year when gold breaks the restraints and pushes to higher ground.  One of those is Carter Worth of Cornerstone Macro in New York who CNBC’s Melissa Lee refers to as “the chart master.”  In a recent interview with Lee, Worth referred to a rendition of the long-term chart below saying that there is “a well-defined set-up and a lot of tension.” He says that combination is going to resolve to the upside – “a breakout to all-time highs.” With respect to gold’s relationship to the dollar, Worth says “Gold’s got its own momentum now. . .It is all setting-up for higher gold prices and trouble for equities, trouble for the economy.”

Chart showing gold price convergence indicating possible move to upside

Repost from 6-5-2019 (!)

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Short and Sweet

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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.”

Chart showing it took 25 years for stock market to recover from 1929 crash

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. 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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Important! –  Gold’s Century: While stocks dominated headlines, gold quietly performed

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Short and Sweet

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Is Buffett wrong about gold?

“While I very often agree with Warren Buffett’s views regarding, for example, the level of cash in portfolio or migration from growth to value stocks,” says Independent Trader for ETF Trends, “I absolutely can not agree with what he wrote in the letter to shareholders about gold, once again showing how badly it performs in comparison to the US shares.” The article goes on from there to do a good job of debunking Buffett’s latest attack on gold  – one of many he has conducted over the years – while drawing on cyclical analysis to lay out a solid longer-term future for the metal. It concludes with the opinion that Buffett’s stance on gold is “part of a deal with the establishment of the United States.”

That could be true, but it could also be little more than an old professional bias on Buffett’s part going back decades combined with a classic talking of one’s book.  We counter with a single chart that refutes his arguments at a glance. It tells the story of gold and stocks in the times in which we live – the historically distinct fiat money era that began in 1971 – not some other timeline that carries little relationship to the present.  To make a very long story short, gold has appreciated 3,399% since January 1971. Stocks have appreciated 2,884%.  What’s more stocks are bumping against all time highs while gold looks like it might be in the early stages of a new bull market run.

Overlay chart of gold and the stock market showing gold outperforming stocks since 1971Chart courtesy of MacroTrends

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