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2024
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Gold Soars, Experts Call 2024 “The Year of the Metals”
This week, Your News to Know rounds up the latest top stories involving precious metals and the overall economy. Stories include: Gold's record-breaking run to $2,500, the modern economist's take on the gold standard and why gold revaluation would be bad business for everyone who doesn't own gold. Gold shatters another record over $2,500 – experts target $3,000 next Gold has embarrassed quite a number of analysts in the past few days, rocketing to another all-time high to $2,509.71 on Friday, August 16. Just a week ago we reported that a number of experts were fully convinced gold might clear $2,500 this year, but probably wouldn't until well into 2025. And here we are. The price of gold has gotten ahead of analysts and experts, hitting their 2025 price targets at least four months early. In what's become a recurring theme this year, the most impressive thing about this new all-timehigh is that nothing really changed. Well, as Yogi Berra famously said, “It's tough to make predictions, especially about the future.“ So what's driving gold prices right now? The consensus reasoning falls somewhere between a weak U.S. housing report and the Fed's anticipated September interest rate cut. Well, neither of these have typically been enough to send gold's price soaring to shatter old records. That anticipated September rate cut has now been used to justify multiple consecutive all-time highs. Which is strange, because it seems to me that the next TWO interest rate cuts have already been priced in. The Fed hasn't changed its story, either. So what's really going on? For once, general sentiment is decidedly bullish. The number of experts predicting an imminent correction, or shouting that gold's price is in a bubble – well, they've gone quiet. Professional and everyday investors agree that gold can hold above $2,500. Obviously that's immensely important when it comes to setting new price targets. According to my math, the price of gold has risen 34% so far this year. That's a pretty sizeable advance – and yet many analysts forecast a $3,000/oz price “in the near future.“
That's an interesting data point. Consider: One decade ago was the final act of a once-in-a-generation global financial crisis. Does that mean we're in some sort of a hidden financial crisis? There's no press conference about it. No panic or alarm bells. Instead, what we have is stubbornly persistent inflation (and the Fed's failure to tame it). We have the #2, #3 and #4 biggest bank failures in U.S. history not that far behind us. We're told the Fed is going to give up on its 2% inflation target to prevent a recession (or, more likely, limit the impact of the recession already underway). Here's the problem with that: Inflation is recessionary. It lowers the purchasing power of our dollars, limiting the economic impact of our spending. Now, we're supposed to make up for it by spending more, because we have to just to put food on the table. On the other hand, inflation makes American households a lot less secure about the future. (It's nearly impossible to make future plans when you don't and can't know what your future purchasing power will be -- or, for that matter, how much a home will cost two years from now.) Despite its drawbacks, inflation is the Fed's antidote to just about every economic challenge. Maybe people are finally catching on? Everyday folks who might not think of themselves as “gold bugs“ just want to park their cash in a low-risk asset that's not steadily being depreciated. That's what Jeff Gundlach thinks. He believes people are pouring into gold and bitcoin because of monetary debasement:
Bitcoin, he thinks, is rising alongside gold for the same reason. It's important to note, no matter how many headlines call bitcoin “digital gold,“ they are not the same thing. While bitcoin has seen a good first half of the year, its run so far is a distant second to gold. Bitcoin offers significantly more volatility. It's probably best to treat gold as a completely separate asset class, valued independently of everything except perhaps governments who persist in ruining their own currencies and economies. What's the current perspective on the gold standard? We know that new-school economists tend to gravitate towards Modern Monetary Theory (MMT), especially those whose paycheck is written by the government. Printing money is seen as the first, second and third solution to every problem. Gold isn't something they talk about. The inclusion of the gold standard in the infamous Project 2025 proposal, though? We're skeptical. It seems to make sense at first: It's a purportedly big-c Conservative proposal. The gold standard can be seen as conservative – it's old-fashioned, at the very least. “Vintage,“ as the kids say. The gold standard is one of the most contentious economic issues. It's so divisive that I wonder whether gold might suffer from guilt by association? Texas Christian University economics professor John Harvey says it’s silly for a national currency to be tethered to a finite and scarce resource. Limiting the supply of money means limiting growth, he claims. That fallacy is precisely the kind of MMT nonsense that passes for economic thinking these days. It's true that there is no reason for a national currency to be “tied to” gold. Rather, the national currency should be gold! Simply tethering money to gold is a recipe for all sorts of funny business. The entire reason President Nixon removed the U.S. from the gold standard was because money-printing led to more dollars than there was gold. That can’t happen if the money itself is gold, can it? Professor Harvey said that a gold standard constrains growth, which we might as well address. Back in 1971, Nixon explained that his agenda was merely “to stabilize the dollar.” Admittedly, that would make French champagne and Russian caviar and other imports more expensive. Even so, he told us, “if you are among the overwhelming majority of Americans who buy American-made products in America, your dollar will be worth just as much tomorrow as it is today.” Since he spoke those words, the dollar has lost 98.5% percent of its purchasing power. Well, remember what I said earlier – the Federal Reserve’s solution to just about every economic problem is inflation. Don’t believe me? Look at the record – from 1971 to today, despite the Fed’s self-imposed 2% inflation target, the average annual CPI has been 4%. They’ve had fifty years of practice and they still can’t get it right! The gold standard limits economic growth? Tell me: Did the U.S. economy grow more in the 50 years before Nixon, or the 50 years after? That’s a tough question to answer, since the reported “growth” of the last few decades is counterbalanced by $35 trillion in debt. In a sense, all that debt-funded growth is temporary – simply a paycheck advance, but on an unimaginable scale. Listen, regardless of what MMT types tell you, a gold standard doesn't just look like a good idea. It looks like the only idea that’s ever worked for longer than, oh, 50 years are so. Currencies come and go -- over 700 in the last few hundred years. Argentina alone is on its SIXTH currency since the turn of the century! Empires rise and fall. Gold simply endures. That is what makes it the ideal foundation for any economy whose government is capable of planning beyond the next election cycle. What does “gold revaluation“ mean? If you don't own gold, nothing good... When we hear of gold revaluation, we tend to think of good things. A closer look to gold's real value and an accompanying surge in gold price, perhaps. But is there a way for the government to actually use gold against us while confusing us with revaluation terminology? Enter the Gold Certificate Account (GCA).
The GCA allows the U.S. government to create money out of thin air while using gold as an excuse. It is neither without precedent nor unlikely-sounding given the desire for easy money across the official sector. Roosevelt did it by essentially changing the gold standard in 1934 when he said an ounce of gold is $35, not $20.67 as was previously the case. It was one of the many instances of weakening the gold standard. Because the value of gold historically went up or down based on the productivity of gold miners, a naive onlooker might have believed 1934 was simply a very good mining year. Instead, it set the stage for the trajectory of U.S. dollar toward zero. Mark Moss of Market Disruptors and Luke Gromen of the Forest for the Trees discussed the negative connotations this might have in a recent podcast. When we hear $20,000 gold, we're tempted to think of gold finally getting its well-earned recognition. But, as Gromen noted, what it will more likely mean is that the U.S. used the GCA to print trillions of U.S. dollars under the flimsy excuse of “revaluing gold according to its reserves.” This would obviously create huge inflation, but Gromen says the U.S. government practically wants it by this point to pay off its debt. After all, printing trillions of U.S. dollars isn't such a big thing nowadays! If the government went for it, it would probably cause some anti-gold sentiment. People might develop a negative association with gold, blaming gold for the hyperinflation rather than blaming the Treasury Department for its accounting shenanigans. So the idea looks more plausible by the minute, even if it's unlikely to actually materialize. On paper, it's just what officials want: more negative associations with gold, greater inflation and yet another way to excuse the inexcusable in the form of the fiat currency. Of course, those who own gold would very much understand that gold ownership would be one of the few harbors to shield from this madness, as is so often the case. The primary beneficiary of this would be those with the most gold, which is governments, as they would sit and watch their real money multiply in price while essentially absconding the currency. There's plenty to be said about the last bit, too. Some, like Dr. Arthur Laffer, former economic advisor to President Reagan and President Trump, aren't hesitant to just go ahead and attribute gold's gains to inflation. Laffer also says he's been noticing shrinking global growth for the past 25 years, which is quite something given that inflation has been called necessary for growth during that entire period. We just quoted an economist who says it still is. To see someone of Laffer's tenure be so critical of the U.S. dollar's prospects is telling, and more than a little worrying. Laffer says a string of sound money policies would be needed to salvage the U.S. dollar, and by proxy all other free-floating currencies, but we aren't likely to see those. Instead, it will be more promises and assurances that inflation is under control, good, temporary and growth-boosting. Oh, and if the U.S. dollar hyperinflates somewhere along the line and sends gold to $20,000 in a week or two? Don’t worry, that’s just our government ”reassessing” its gold reserves.
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