As the Gold price continues to float just under $2,000, we’re looking ahead to see what it would take to move up to $3,000. Here’s the simple answer— time.
Given a little time and patience, we feel that the results of the government and Federal Reserve reaction to the CoronaVirus Pandemic will prove financially worse long-term than the closings.
We’ll admit that many investors remain hesitant about jumping into Gold and Silver right now. So, we’d like to persuade those of you teetering on the edge today.
- You can’t easily compare Gold to Stocks. Gold has no CEO, no revenue, no financial statements, no employees. These facts make Gold a unique investment— especially during these times..
- Gold typically outperforms in negative real interest rate environments (when yields on treasuries are lower than the inflation rate.)
- Since the 2000s, negative real interest rates have been prevalent and Gold has seen 600% gains over the last 20 years.
- The extreme growth of the money supply is a key indicator of the future value of gold.
“But, we don’t see any inflation right now,” You’re probably thinking to yourself. This is why some folks arrive late to the party for Gold. It’s too late to jump in after Gold doubles in price, then doubles again, then doubles again.
- Price inflation in goods, services, electric bills etc. follow monetary inflation by two to three years. No, you can’t see inflation…yet.
- The Federal Reserve fears deflation, caused by the pandemic, far more than inflation and will helicopter Trillions on the problem.
- We don’t easily see inflation yet because the government lies. It measures CPI in urban areas for all items excluding Food & Energy where price inflation appears first.
- A low gas price today is due to the excessive oil supply and demand down worldwide during pandemic. But, gas is not a barometer of price inflation because gas is excluded in the CPI.
But low “official” inflation hasn’t stopped gold from drastically increasing in the 21st Century.
Gold Price vs Stock Market – 20Year Chart
This chart compares the historical percentage return for the Dow Jones Industrial Average against the return for gold prices over the last 20 years.
A St Louis Fed study in 1980s that confirmed that it took 12 quarters for prices to reflect 100% of the money supply growth.
Inflation is consistent, persistent and highly damaging over time. Following a crisis, when massive waves of money are created out of thin air, inflation can surge quickly, without notice to the would-be Gold buyer. By then, it may be too late to maximize gains.
Inflation Never Stops
In recent times when the Federal Reserve says inflation is low, prices still rapidly eat away at the buying power of our money. Over the past 20 years, a $100 basket of goods costs $151.15 today.
Now, let’s factor in that the Federal Reserve is now targeting ever higher inflation… how much inflation is enough? Are they thinking 4%. Maybe 6%. Will inflation get our of control and top 10%. We don’t know, that’s why many of us own Gold.
With another $2 Trillion of fake money yet to be shoved out by Congress, there’s still time to acquire more precious metals.
Last Word on Inflation
Some of us have longer memories and a far greater fear of inflation. The Inflation Calculator shows an item we purchased in 1970 for $100, cost $212.37 just ten years later. The cost doubled, not in 20 years, but just 10 years.
Since they don’t teach financial history in school, this chart of annual inflation during the 1970s might be a shocker to many of you. For those who lived through the crisis, it’s easy to forget years of inflation over 11%.
Gold Loves Inflation
We believe investors need to diversify assets with protection from the current monetary inflation. We will absolutely need protection from future inflation brought on by the government’s excessive spending and the Federal Reserve’s monetary inflation.
On the next leg up in this bull market for metals, I expect a pop-up quickly just as the Fed suddenly injected massive waves of new money into the system prop-up the crashing Stock, Bond, and ETF markets in March.
What To Do Next
If Congress pushes through another $2 Trillion into pandemic support, it might make sense to increase your Gold holdings from 5% to 15% of liquid assets. Mixing in more volatile Silver as part of that allocation is what we’ve always recommended. Make the move sooner than later.