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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After a strong year for gold and silver, the market has seen a downturn since the election. It can be easy to get nervous and panic, but it’s important to remember that these short-term movements are a normal part of the market cycle. Instead of panicking, this is a great time to recognize the value of dollar cost averaging.

Understanding Market Movements

Precious metals, like any other asset, experience price volatility. Over the past few weeks, we’ve seen some significant swings. This price “ping pong” can be influenced by various factors, including economic data releases, geopolitical events, and market sentiment shifts. While these movements can be dramatic, they are typically temporary and do not alter the long-term value proposition of investing in precious metals. The world is still printing money, which means gold will continue to be a good investment when pitted against fiat currencies.

The Power of Dollar Cost Averaging

One of the most effective strategies to manage market volatility and avoid emotional reactions to market movement is dollar cost averaging (DCA). This approach involves regularly investing a fixed amount of money into precious metals, regardless of the price. Here’s why Dollar Cost Averaging is a smart strategy:

1. Mitigates Risk: By spreading out your investments over time, you reduce the risk of making a large purchase when prices peak. This helps to smooth out the effects of market volatility.
2. Builds Discipline: Dollar cost averaging encourages disciplined investing habits. It removes the emotional aspect of market timing and helps you stay committed to your long-term investment plan.
3. Cost Efficiency: When prices are high, your fixed investment buys fewer ounces of precious metals. When prices are low, the same amount buys more. Over time, this can lower the average cost per ounce, enhancing your overall return.

Practical Tips for Dollar Cost Averaging

• Set a Schedule: Decide how often you will invest (e.g., monthly, quarterly etc…) and stick to it.
• Determine an Amount: Choose a fixed amount to invest each time, aligning it with your financial goals and budget.
• Don’t Get Fixated on the Price: The price will go up and down, but it will continue to go up in the long term. Instead of being paralyzed by watching the price, buy at regular intervals regardless of it.

Long-Term Perspective

At Fisher Precious Metals, we advocate for a long-term investment approach. Precious metals have proven to be a reliable store of value over time, preserving wealth through economic ups and downs. By focusing on the big picture and consistently applying dollar cost averaging, you can confidently navigate short-term market fluctuations.

Conclusion

Recent movements in the precious metals market are a natural part of the investment journey. Remember the importance of dollar cost averaging instead of getting caught up in the daily price swings. This disciplined strategy allows you to build a solid portfolio over time without the stress of market timing. Stay the course, and keep your eyes on your long-term goals.

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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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Over the past 12 months, gold has experienced a significant rise, with prices climbing nearly 30% year-to-date. Currently hovering around $2,667 per troy ounce, gold is climbing closer to the $2,700 mark. The bar is moving higher and higher. Just a few months ago everyone was asking, “will gold rise past $2,400”. Not long before that the target mark was $2,200. It is time to ask a simple question. Is there an end in sight to gold’s rise? This upward momentum shows no signs of slowing down, and this is because the drives have not slowed down. Gold is driven by a mix of economic uncertainty, geopolitical tensions, and strong demand from central banks.

Key Drivers Behind Gold’s Surge

1. Economic Uncertainty: Inflation concerns and a weakening U.S. dollar have led investors to seek refuge in gold, a traditional store of value. All you need to do is compare the price of groceries from two years ago to now, and you can see the significant effects of inflation.
2. Geopolitical Tensions: Conflicts in regions like Gaza and Ukraine have heightened global instability, prompting more investors to turn to gold as a safe haven. With Israel now fighting Hezbollah in Lebanon and Ukraine counter invading Russia, neither conflict seems to be slowing down.
3. Central Bank Demand: Central banks worldwide are bolstering their gold reserves, reflecting ongoing worries about inflation and economic stability.

Staying the Course with Dollar Cost Averaging

As gold continues its ascent, maintaining a disciplined investment approach is crucial. Dollar cost averaging (DCA) remains a smart strategy, allowing investors to mitigate market volatility and build wealth over time. If you have been dollar cost averaging over the last few years, you have seen significant growth in the value of your precious metals. By regularly investing a fixed amount, you can take advantage of gold’s upward trend while managing risk effectively.

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Disclaimer, this article is based on my gut feeling for my gold price prediction – for whatever value you place on that.  I have been in the precious metals business 29 years.  After a while you start to develop a feeling about what should (note:  not will) happen.  First, what has happened so far this year?

Gold (yellow line below) started the year at slightly over $2,000 per oz and has performed better than the S&P 500 (blue line).  Gold will easily reach $2,500 this year. 

If gold continues to perform as it has for the past two years, up more than 45%, it only needs to rise 20% between now and the end of 2025 to reach $3,000 per oz (see below). 

My prediction is gold prices will continue rising due to several key factors:

1. Economic Uncertainty: Inflation and potential recession
2. Geopolitical Tensions: Conflicts, wars, and geopolitical instability are breaking out everywhere.
3. Central Bank Policies: Central banks worldwide continue to buy massive amounts of gold to diversify their reserves.
4. Interest Rates: Expectations of lower interest rates will make gold more attractive compared to interest-bearing assets.
5. Fiscal Policy: No matter who gets in the White House, that president will deficit spend – guaranteed
6. Monetary Policy: The Federal Reserve will continue to print—they have to pay the interest on the debt and meet Treasury demands. And if we tilt into a recession or asset prices fall (stocks, housing, employment), it will print with a vengeance.

I know gold seems expensive—I get it. It has already risen almost $500 this year. But I assure you, it is only going up. You can gamble and try to catch a dip, but averaging in is almost invariably the best strategy.

Remember, gold is not really going up.  If the dollar’s purchasing power were preserved, it would not go up.  It just takes increasingly more decaying paper to buy it.

Weimer Republic (Germany) 1923 fueling stove with currency:

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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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What forms of money are recognized in every country of the world? I would argue only three:

U.S. Dollars – specifically $100 bills
Gold – bars, coins and jewelry
Silver – bars, coins and jewelry

What forms of money can you practically carry (transport) to other countries? The amount of U.S. Dollars is
probably limited to $10,000 until eyebrows are raised. Silver of any significant dollar amount is
too heavy. That leaves gold, whose value is the most concentrated and the most portable.
Plus, many countries do not have currency controls on gold as opposed to fiat (check local
regulations).

Consider what you would do if you desired to, or had to, quickly leave your city, state or country.
How would you take a meaningful amount of wealth with you? What form of money could you take with you?

The desire of gold is not for gold. It is for the means of freedom and benefit.

Ralph Waldo Emerson

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What does that have to do with precious metals?  It really has more to do with an economy that needs more money, and soon!

My Barber

I see my barber every three weeks.  He was always fully booked weeks out.  When I last saw him, I asked him how his business was.  He replied, “slower than he ever remembers”.  Men are waiting an extra week or two between haircuts.  Someone at home is cutting their hair.  He can’t raise prices for fear of driving his remaining customers away.  And, of course, his costs are going up.

My Dry Cleaner

Here in South Florida, we get boatloads of Canadian snowbirds yearly.  My dry cleaner tells me hardly any came this year.  The exchange rate for Canadians is terrible.  Add to that inflation, and the snowbirds largely stayed home.  South Florida is missing this year’s Canadian (and European) seasonal visitors.

Breakfast on the Beach

The other day, I thought to myself, “I’m going to take a break from work and go down to the beach and have breakfast.”  My office is only a few miles away.  I get to the beach around 9:30 am.  It’s a beautiful sunny day.  Usually packed in February by vacationers, this morning I had my choice of parking spots right at the prime part of the beach.  I go into the  Deerfield Beach Wyndham, which has an ocean view, and there are only two other tables with diners in the entire restaurant.  I asked my server how long she had been there – “Three and a half years.”  “How is business?”  “Terrible – the slowest in three years – I’m not making any money, and management is concerned.”  Mind you, this is one of the most beautiful beaches in South Florida.

Conclusion

The Fed will ease.  Monetary stimulus will come.  The Treasury will continue to deficit spend.  It’s an election year, and people are hurting.  Gold will do especially well.

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I do not have a crystal ball, but these predictions are the distillation of everything I have read and everyone I have spoken with in and outside of the industry.

MORTGAGES

Mortgage rates will fall below 6% for credit scores above 750.  Marginal credit will see interest rates around 6.5%

PREDICT MORE INFLATION

Real inflation (not the fake, self-serving government numbers) will outstrip wage growth.  The Low and middle income households will get poorer in real terms

INCOMING LAYOFFS

I am reading predictions showing 10% layoffs in big and small companies everywhere (Google, Citi, UPS).  Don’t believe unemployment numbers.  I have clients and acquaintances who have applied for a multitude of jobs to no avail.  AI and robotics are going to wipe out many professions – blue and white collar.  Young people should consider the trades (plumber, electrician, medical) where there will most likely always be a need.

PREDICT MORE CONSUMER SPENDING

Spending went crazy during the plandemic, and predictions show it is not slowing down.  Consumer debt is between $1-$1.4 TRILLION dollars.  Average credit card interest rate stands at 21.2%.  Delinquencies are at all-time highs.  Bankruptcies are on the rise.  19% of all car loan/lease monthly payments are over $1,000.  Average car loan term is 5.5 years.  62% of new car loans are being denied.  Mortgage application denials are on the rise.  Here in south Florida, the Canadians didn’t come down this year as they always do – they couldn’t afford it due to prices and exchange rate.

DE-DOLLARIZATION

The dollar is continuing to decline in prominence.  What country wants to hold debt of a nation that is 135% of GDP and dilutes (prints) at will?  BRICS and prospective BRICS countries want an alternative.  The U.S. uses the dollar as a weapon, most recently illustrated by forbidding Russia to use the SWIFT international payments system.  Russia is showing the world that they don’t need dollars – they can do direct currency swaps with the recipients of their oil and store their reserves in gold and bitcoin.

MORE WAR

Predictions show wars, proxy wars and new wars will increase.  Ukraine will eventually have to acquiesce, at least partially.  The U.S. and Israel will bomb Iran while the international community stands by with token support – allowing us to use money we don’t have and continue to put our soldiers in harms way.  China will go into Taiwan – maybe not this year – but they will.  One of these days someone will use a nuclear device.

PREDICTIONS ON ILLEGAL IMMIGRATION

Prediction show that we will continue to drown in illegal immigrants. We have terrorists within our country planning single and/or significant attacks.  We will have another 9-11 equivalent instance.  Chemical, Cyber, bombing or even a dirty nuclear device.  Immigrants will be in every city in the United States as they spread out.

ELECTION PREDICTIONS

Here are some possibilities:  Either Trump or Biden don’t make it to election day.  Haley is hanging on in case Trump goes to jail or dies prematurely.  Newsome and Michelle Obama are in the wings in case Biden completely falters or dies prematurely.  Jail, complete falter or premature death for Trump or Biden – desperate times, desperate measures.  In the end, as with the 2020 election, the end justifies the means.  How about a national cyber event just before the election, or covid 2.0, or use your imagination, could result in suspension of the election and martial law.

FED PIVOT

It’s an election year.  “It’s the economy stupid”.  Predictions show rates will come down.   Liquidity will be pumped into the system which will have to flow somewhere.  The stock market and home prices will rise.  Many people will “feel” richer.  Fed rate pivots typically are followed by a recession 6-12 months later.  They will juice the economy and put lipstick on the pig.

This list isn’t exhaustive, and my readers are largely aware of all of these items already.  What to do?

1. Get out of debt except for your mortgage provided you have equity in your home
2. Have 3-6 months cash at home.  Many of the black swan events I have cited could result in bank closures / bank holidays and non-functioning ATM machines
3. Get 5% or more of network in physical gold/silver/platinum – purchases are still largely unreportable, and that WILL change
4. If you invest in the stock market, the NASDAQ and S&P should do well for the next 12 months.  Just buy the indexes – don’t stock pick
5. Dip your toe in bitcoin.  Educate yourself on YouTube.
6. Buy land other than your principal residence.
7. Read your Bible or Torah – it will reassure you that God is fully in control even if we don’t understand and it makes no sense.  His ways are not our ways.

John

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