In 1971, the United States significantly shifted its monetary policy by abandoning the gold standard. This decision, known as the “Nixon Shock,” was a turning point in the nation’s economic history and has had lasting effects on the global financial system.

The gold standard, which had been in place in various forms since the 19th century, tied the value of the US dollar to a specific amount of gold. This system ensured that the currency had a tangible backing, providing stability and confidence in its value. The Bretton Woods Agreement, established in 1944, further solidified the gold standard’s role in the international monetary system by pegging other currencies to the US dollar, which was convertible into gold.

By the late 1960s, however, the US faced mounting economic challenges. The costs of the Vietnam War and President Lyndon B. Johnson’s Great Society programs had led to significant budget deficits. The government was trying to spend money that it did not have. Additionally, other countries were beginning to question the stability of the US dollar and started redeeming their dollars for gold. This put immense pressure on the US gold reserves, which were rapidly dwindling.

In response to these pressures, President Richard Nixon announced on August 15, 1971, that the US would no longer convert dollars into gold. This decision effectively ended the Bretton Woods system. It marked the beginning of a new era of fiat currency, where the value of money is not tied to any physical commodity but is instead based on government decree.

The Consequences of Abandoning the Gold Standard

The transition to fiat currency had significant implications for the US and the global economy. Without the constraints of the gold standard, the US government gained greater flexibility in its monetary policy. This allowed for more aggressive measures to manage economic cycles, such as adjusting interest rates and controlling the money supply. This control allowed the government to spend money without having to back it up with physical gold. Gold no longer needed to be available for foreign entities that wanted to trade their dollars for gold. If the government needed money, they could create it out of thin air.

However, this newfound flexibility came with obvious problems. The absence of a tangible backing for the currency opened the door to fiscal irresponsibility. The US national debt began to soar, and the government increasingly relied on printing money to finance its expenditures. This led to a devaluation of the dollar and a loss of purchasing power for ordinary citizens. Since 1971, on average, prices have increased by approximately 632%. In other words, what cost $1 in 1971 would now cost around $7.32. Just since 2020, costs have increased by 22.8%. This is all based on the assumption that the Consumer Price Index is accurate. There are many reasons to believe that the percentages are incorrect based on biased ways of reporting price increases.

According to the Shadow Government Statistics (SGS) Alternate CPI, which uses methodologies from before the 1980s and 1990s changes to the official CPI calculation, the inflation rate would be significantly higher than the official CPI. While the official CPI might report an inflation rate of around 85-86% since 1971, the SGS Alternate CPI indicates that if inflation were calculated using the pre-1980 methodology, the cumulative inflation rate since 1971 would be around 1,000%. Regardless of the methodology, the point is this: the dollar has and continues to lose value rapidly.

Inflation became a persistent issue, eroding the value of savings and disproportionately affecting those with fixed incomes. The centralization of monetary control in the hands of policymakers, particularly the Federal Reserve, also concentrated economic power and introduced the risk of policy errors and market distortions.

A Call for Sound Money

The abandonment of the gold standard marked a significant departure from sound monetary principles. This move has led to fiscal irresponsibility, inflation, and the centralization of power. A return to a system of sound money, backed by tangible assets like gold or silver, would restore economic stability and safeguard individual freedoms in the face of an increasingly interventionist monetary policy.

Unfortunately, we cannot control what the government does with our money alone. However, we can implement the same principles that we want the government to implement. Instead of relying solely on Fiat currency, we can back our wealth by investing in gold and silver. The price of gold has increased by approximately 8,300% since 1971. This is why gold is the best way to avoid the adverse effects of inflation.

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Fiat currency, like the US dollar, is not backed by a physical asset like gold or silver. Instead, its value is derived from government regulation and the trust and confidence of the people. It is valuable because the government says that it is valuable. It is also the reason your grocery prices continue to increase.

The Nature of Fiat Currency

Fiat currency is created through a process called the “Mandrake Mechanism,” where money is created out of debt. When a loan is issued, new money is created, and the money disappears when the loan is repaid. This system creates a flexible money supply, but it introduces significant risks.

Effects on the Monetary System

The shift to fiat currency has fundamentally transformed the monetary system. Central banks, like the Federal Reserve, can control the money supply, which can be used to manage economic cycles. Central banks can increase the money supply during economic downturns to stimulate spending and investment. Conversely, they can reduce the money supply to curb inflation during rapid economic growth.

However, this flexibility comes with challenges. The absence of physical backing means that the value of fiat currency is highly dependent on the stability and economic policies of the issuing government. Any loss of confidence in the government’s ability to maintain economic stability can lead to currency devaluation and inflation.

Inflation and Fiat Currency

One of the most significant criticisms of fiat currency is its propensity to cause inflation. Since fiat money can be printed at will, its supply has no intrinsic limit. This can lead to an increase in the money supply without a corresponding increase in economic output, resulting in inflation. Inflation is a hidden tax, as it reduces the purchasing power of money. When new money is created, new value is not. That value has to come from somewhere, and that somewhere is the purchasing power of previously issued currency. Inflation is a tax because it takes value that the everyday person has earned and redistributes it, often without the person realizing it.

Historically, periods of high inflation have been associated with excessive money printing, such as during the 1970s. The Federal Reserve’s response to high inflation, including raising interest rates, has profoundly affected the economy.

Conclusion

The transition to a fiat currency system has given central banks incredible power to manipulate the economy and the value of money. This hidden tax is the real reason prices continue to increase. Given the potential for inflation and economic instability, it’s crucial to diversify your assets to safeguard your wealth and ensure its preservation over time. Don’t put all your eggs in the fiat basket; explore other investment options to protect yourself against the unpredictable nature of fiat currency. It is prudent to put a portion of your net worth into tangible, physical assets like gold and silver. Something that cannot be debased, cannot be inflated, and has been used as a store of value for thousands of years.

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Gold’s price rise reflects concerns that world bankers, international monetary authorities (and you and I) should know.  Everyone in the know understands this is unsustainable.  The populous is told everything is fine and just continue to put your trust in the central banks. 

Debt is very, very easy to create with fiat currency.  However, the more debt you make, the less valuable is the previous debt you created.  You can not randomly create gold.  It only inflates at about 1.8% per year.  World governments know this, hence their increased gold holdings.

Not only is debt growing but, of course, the interest due on that debt continues to grow. Tell me, is this sustainable?

Gold price will continue to rise and do very well for the balance of 2024 and into 2025.  We could see $3,000 this year and probably $3,500 to $4,000 next year.  Silver should ride its coattails and maybe outperform.

Finally, I know that the gold price seems high. I have been at this for 30 years. It has always seemed high, and it’s going higher. Dollar-cost averaging in modest amounts on a consistent basis is, and always has been, the best approach.

Fisher Precious Metals Product Pricing

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In today’s economy, inflation is becoming a major concern for the average American. Prices keep rising, and wages have not kept up, making it increasingly difficult to make ends meet. The dollars that were worked for and saved up are becoming less valuable. Precious metals like gold and silver have historically served as hedges against inflation, as we have mentioned before, and here’s why.

Understanding Inflation

Inflation is the rate at which the general level of prices for goods and services rises, decreasing the purchasing power of currency. When inflation is high, each unit of currency (for example the dollar) buys fewer goods and services. Your dollars do not have intrinsic value, so they are only as valuable as their purchasing power at any given time. This is where precious metals enter the conversation.

Intrinsic Value and Scarcity

Precious metals are inherently valuable due to their scarcity and unique properties. Unlike paper currency, which can be printed in unlimited quantities, the supply of gold, silver, platinum, and palladium is limited. It is impossible to create more gold or more silver than already exists. This intrinsic value means that, even when the value of currency decreases, the value of precious metals often remains stable or even increases. As more money is printed, the price of gold and silver will go up as it takes more dollars to buy these precious metals. This means, that if you own gold and silver, as the dollar inflates, your precious metals maintain or even grow in value.

Historical Performance vs Inflation

This makes sense from a logical perspective, but history has also backed up this claim. Gold and other precious metals have performed well during periods of high inflation. For instance, during the 1970s, when inflation rates in the U.S. soared, gold prices experienced a significant surge. In 1971, Nixon took the dollar off of the gold standard meaning it was no longer backed by precious metals. Gold jumped from $35 pre ounce to $850 per ounce between 1971 and 1980. Investors turned to gold to preserve their wealth, and the price of gold skyrocketed.

Supply and Demand Dynamics

Not only do precious metals maintain their value during inflationary periods, they can often grow in value due to supply and demand. The demand for precious metals typically increases during inflationary periods as people seek to preserve their wealth. Investors seek to protect their assets by purchasing metals, which then leads to higher prices. Additionally, the supply of precious metals cannot be ramped up quickly, ensuring their value remains robust.

Non-Correlated Assets

Precious metals often move independently of other asset classes, such as stocks and bonds. During periods of economic instability, when traditional investments might underperform, precious metals can provide a safe haven. This is why they are called “safe-haven assets”. This non-correlation makes them an effective tool for diversification and risk management.

Conclusion

We believe in the enduring value of precious metals as a hedge against inflation. Their intrinsic value, historical performance, and non-correlation with other asset classes make them invaluable tools for preserving wealth during periods of high inflation. As investors seek stability in uncertain times, precious metals remain a reliable option.

For more on inflation, read our article on inflation here: https://fisherpreciousmetals.com/inflation-the-hidden-tax/

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With the world becoming more and more unpredictable, central banks worldwide are increasingly trading U.S. dollars for gold. There are several compelling reasons behind this shift. By delving into these specifics, we can gain a clearer understanding of how this could influence the price of gold.

Russia

Russia has been at the forefront of this movement, and its central bank has significantly ramped up its gold purchases. They have increased its daily gold acquisition by 700%. This strategy is part of a broader effort to reduce reliance on the U.S. dollar, driven by geopolitical tensions and economic sanctions stemming from the conflict in Ukraine. By holding gold, Russia aims to safeguard its economy from external shocks and assert greater financial independence.

Turkey

Turkey has significantly increased its gold reserves, reaching an all-time high of 584.93 tonnes in the second quarter. This aggressive expansion is part of a strategic move to diversify its foreign exchange reserves and hedge against geopolitical risks. Since 2016, the Turkish Central Bank has added nearly 300 tonnes of gold to its holdings and 14.63 tonnes in 2024 alone.

India

In 2024, India has significantly increased its gold reserves, with the Reserve Bank of India (RBI) purchasing nearly 13.3 tonnes of gold in the first two months of the year. This move is part of a broader strategy to diversify its foreign exchange reserves and hedge against inflation. The RBI’s gold purchases have contributed to a $3 billion rise in forex reserves, reaching $648.5 billion

China

In 2024, China has continued its aggressive gold-buying spree, with the People’s Bank of China (PBOC) purchasing an additional 18 tonnes of gold in the first quarter alone. This move is part of a broader strategy to diversify its reserves and reduce reliance on the U.S. dollar amid ongoing global economic uncertainties. China’s central bank has been transparent about its gold-buying activities, signaling a strategic shift towards greater financial security.

The Case for Trading Dollars for Gold

There are several reasons why central banks are opting for gold over the dollar. First, gold is a tangible asset with intrinsic value, unlike fiat currencies, which can be subject to inflation and devaluation. Second, gold acts as a hedge against economic instability and geopolitical risks. Third, gold’s liquidity and universal acceptance make it a versatile reserve asset.

De-Dollarization Movement

This trend is part of a broader de-dollarization movement in which countries seek to reduce their reliance on the U.S. dollar. By diversifying their reserves with gold, these nations aim to protect their economies from potential dollar fluctuations and economic sanctions. As Americans, it is easy to become self absorbed and internally focused.. However, the world is quickly moving away from the dollar and towards gold. As the dollar becomes less demanded, it will become inflated even more than it already has.

Trading for Gold’s Impact on Prices

As more central banks buy gold, the demand for this precious metal increases, driving up its price. This trend is likely to continue as geopolitical tensions and economic uncertainties persist. For people like you and me, this means gold could become an even more attractive asset, potentially leading to higher prices. Remember, as the dollar continues to lose value through inflation, the price of gold continues to rise.

Future Outlook

Looking ahead, the demand for gold is expected to remain strong. Central banks’ continued shift towards gold is likely to keep prices elevated, making it a valuable asset for both national reserves and individuals. 

The trend of central banks trading dollars for gold is driven by a desire for greater economic security and diversification. As this movement gains momentum, it has the potential to drive gold prices even higher.

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In recent years, central banks worldwide have been buying gold in much larger quantities than in the past. This has potentially negative effects to the US economy, and the dollar. According to the World Gold Council, central banks bought a record 1,081.9 tons of gold in 2022. In 2023, that number was 1,037.4 tons. For context, in 2021, central banks only bought 450.11 tons. 2024 has already shown that it will be no different this year. But what does this mean, and why should you care?

Central banks traditionally hold gold for its stability and value retention. However, the recent surge in purchases indicates a shift in priorities. By boosting gold holdings, central banks aim to reduce their reliance on the U.S. dollar. The dollar has been the dominant global reserve currency. This diversification helps mitigate risks associated with dollar-denominated assets. In other words, the uptick in gold indicates a move away from the dollar, which will have drastic effects on the US economy.

Gold is also seen as a hedge against inflation and economic instability. With high inflation rates and wars all over the globe, central banks are viewing gold as a reliable store of value. Gold is also significantly less susceptible to monetary policy changes than fiat currencies. Additionally, growing concerns about the long-term strength of the U.S. dollar, driven by factors like the rising U.S. national debt and the worsening political climate, motivate these gold purchases. Central banks are preparing for potential declines in the dollar’s value by securing a stable asset.

This trend also aligns with a broader move towards de-dollarization, as countries like Russia and China seek alternatives to the dollar for international trade and reserves. The increased gold reserves signal a cautious outlook on the dollar’s future and suggest a shift towards a more multipolar currency system.

In summary, central banks’ gold stockpiling reflects a strategy of reduced reliance on the U.S. dollar. If the banks are moving some of their holdings to gold instead of the dollar, maybe you should as well.

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What is inflation? It is a term that has been on everyone’s lips recently. However, most people do not understand it. Inflation, often called the “hidden tax,” quietly erodes purchasing power, impacts savings, and alters the financial landscape without explicit legislative action. Unlike direct taxes, inflation diminishes the value of money over time, affecting individuals and businesses alike.

Understanding Inflation

Inflation is the rate at which prices for goods and services rise, reducing currency’s purchasing power. High inflation can lead to serious economic problems and a lowering of the median standard of living. Inflation is not random. When the government prints new money it causes inflation by taking the wealth of the average American and redistributing it to government programs, foreign aid, and other expenses. Printing money to pay for these programs is much easier than raising taxes on the American people. Americans are aware when their taxes are higher, they are not as aware of the causes of inflation and rising prices.

Inflation as a Hidden Tax

1. Erosion of Purchasing Power: Inflation reduces money’s value. If inflation is 3%, something costing $100 today will cost $103 next year, acting as a tax on consumption and savings. The government receives this tax as they continue to print money to pay for various programs that keep voters happy and themselves in power.
2. Impact on Savings: Savings lose value if the interest earned is less than the inflation rate. For example, with a 2% interest rate and 3% inflation, savers lose 1% of their money’s value each year. That is assuming that the inflation rate we are given accurately reflects the actual effect on purchasing power. The value in newly printed money is taken from the value that was present in the average American’s savings.
3. Wage Stagnation: Wages often lag behind inflation, reducing real income and acting as a hidden tax on labor. As wages do not rise with inflation, the average American’s standard of living worsens.
4. Debt Relief for Borrowers: Inflation benefits borrowers as the real value of debt decreases, acting as a reverse tax on creditors.
5. Government Revenue: Inflation increases tax revenue indirectly through “bracket creep,” where rising nominal incomes push taxpayers into higher tax brackets.

Gold and Silver: Inflation-Proof Assets

Gold and silver are reliable stores of value during inflationary periods due to their intrinsic value, historical stability, and global acceptance.

1. Intrinsic Value: Gold and silver have inherent value due to their limited supply.
2. Historical Stability: Gold and Silver have been used as stores of value for thousands of years.
3. Global Acceptance: These metals are safe stores of value. The whole world recognizes gold and silver.

Conclusion

Inflation is a hidden tax impacting savings, consumption, and income. Understanding its effects and investing in inflation-proof assets like gold and silver can help protect your hard-earned wealth. Awareness and proactive management are key to minimizing inflation’s hidden costs.

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Will gold and silver go lower? In a word – possibly. What would cause the metals to go lower?

Further hikes by the Fed make interest bearing instruments more attractive (Treasuries, CD’s, money market funds, etc.). Metals do not pay any interest (yield).

The DOW is negative for the year – people are moving to cash. And when they move to cash, they do so indiscriminately. This includes moving their paper precious metals holdings (ETF’s, futures, options, mutual funds, derivatives, etc.) to cash. Most of the precious metals market capitalization is held in these instruments. Physical holdings are only a small percentage – and physical holders typically do not sell.

The dollar index is at a high for the year, despite a huge expansion of the money supply, burgeoning
debt, downgrades by Moody’s and Fitch (with other rating institutions considering the same), BRICS gaining traction, BRICS expansion on the horizon, the executive and legislative branches in turmoil – the list goes on and on. Yes, in the end, the dollar is the best piece of garbage on the planet. At least for now.

Gold could go back to the $1650 range. Do not believe anyone who tell you it is not possible. When it did in 2022, six months later it had risen to $2050, a $400 or 25% move.

Will it go that low? Maybe. Who knows? If you are a gambler you can wait and see if you can catch the “falling knife”. Will it go back to $2050 and then some, absolutely. We all know
that. So, what are you going to choose – the gamble or the sure thing.

Bottom line – we do not know how low for how long. We do know highs and higher highs will return. In the end, years from now, it will be more important to have your position (accumulated the ounces / dollar value) you want, than to have gotten faked out by price fluctuations and come up short. Dollar-cost average in modest, regular amounts. That is what I do – picking highs and lows has never worked for me.

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“When the first shot rang out at Dealey Plaza on November 22, 1963, most bystanders didn’t even realize that it was the sound of gunfire.  But Texas Governor John Connally was an avid hunter. He recognized the sound, sensed danger, and turned behind him to check if President Kennedy was OK.
Moments later, the second shot was fired, striking Connolly in his back. And as he looked down and saw his blood-soaked shirt, he shouted, “My God, they’re going to kill us all.”

President Kennedy, of course, did not survive. But Connally eventually made a full recovery. And, having achieved near mythical status in the State of Texas, he was re-elected twice more as governor.
Then, in 1971, President Richard Nixon asked Connally to be Treasury Secretary. Connally accepted the post despite having almost zero experience in finance or economics. And when questioned later by reporters about his obvious lack of credentials, he famously quipped, “I can add.”
(Connally later declared personal bankruptcy.)

The US economy was in bad shape at the time; Nixon’s predecessor, Lyndon Johnson, had spent aggressively on the Vietnam War while simultaneously spending billions of dollars– a prodigious sum in the 1960s– on education, anti-poverty, and welfare programs.
And inflation rose to around 6% thanks in large part to this excessive government spending.

Developed countries around the world began to rapidly lose confidence in the US dollar and the American government’s ability to manage its finances. And the Treasury Department started receiving demands from foreign governments who wanted to redeem their US dollars for gold.

Nixon was in a bind about how to fix the economic mess. And it was Connally– full of Texas swagger (and little else)– who convinced the President to formally end the dollar’s convertibility into gold.
Nixon made the announcement on Sunday night, August 15, 1971, unilaterally ending the “Bretton Woods” international monetary system that had been in place since 1944.

The announcement became known as the “Nixon Shock”. And “shock” is probably the right word. Foreign governments were in a panic; their entire financial system had been snatched away, overnight, without any warning. And politicians don’t tend to handle uncertainty very well.

This is where Connally stepped in yet again to smash foreign governments in the face with their new reality. “The dollar is our currency,” he told his fellow finance ministers in late 1971, “but it’s your problem.”

Connally was essentially pointing out that the rest of the world didn’t have an alternative to the US dollar. Nearly every nation on earth conducted international trade in US dollars. And because they had no other alternative, the US government could do whatever it wanted… including rack up huge deficits and painful inflation.

And that’s what happened. With no reason to restrain itself or have any financial modesty whatsoever, US government spending soared. Deficits piled up year after year, leading to a particularly nasty episode of stagflation in the 1970s.

One of Connally’s lasting legacies was scaring the world into setting up an alternative to the US dollar.
Europeans in particular were freaked out by the Nixon Shock… so much, in fact, that western European nations eventually banded together to form their own currency as an alternative to the US dollar; today the euro has about a 20% share of global financial reserves.  But with a 60% market share, the US dollar is still dominant. For now.

More than fifty years after the Nixon Shock, the US government still has no financial restraint. Annual deficits easily top $2 trillion, nearly 10% of GDP. America’s fiscal situation is so bad that, within the next decade, 100% of tax revenue may be consumed just to pay for mandatory entitlements (like Social Security) and interest on the debt.

If that weren’t bad enough, the Treasury Department has also made a habit of weaponizing the US dollar, i.e. threatening individuals, businesses, and foreign governments to bend to its will or else be cut off from the global financial system.

It’s no wonder that there’s been so much in the news lately about alternatives to the US dollar. Late last year, for example, Saudi Arabian officials said that they were “open” to selling oil in a currency other than US dollars (i.e. Chinese yuan).  And just a few weeks ago, members of the “BRICS” alliance expanded their membership in an effort to directly challenge the dollar’s dominance.”

Simon Black, Founder
Sovereign Man

My (John’s) opinion – The demise of the dollar will accelerate.  Gone is the exclusivity of the petrodollar.  The Chinese Yuan is on the rise.  The BRICS (Brazil, Russia, India, China and South Africa) are seeking to add Argentina, Egypt, Ethiopia, Iran, Saudi Arabia (Iran and Saudi Arabia have historically been enemies -Shiite and Sunni) and the United Arab Emirates (Dubai).  BRICS is exploring their own currency backed by other commodities. Commodities like Gold, Oil, and other precious metals.

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