According to Kitco, the current spot price of gold is (at the time of writing) US $3,339.30. Six months before, on November 25, 2024, it was $2.627.50. That's a difference of $711.80, or a rise of 27% in the spot gold price over a period of six months. Does that mean that gold is actually worth more, intrinsically? No. It means that the dollars normally used to buy and sell gold are worth that much less today than they were in November 2024. Gold hasn't gotten stronger - the dollar has become that much weaker.
There are many reasons to which the weakness of the dollar is usually attributed, but basically it's because there are too many dollars in circulation. It's a basic rule of inflation. Increase the money supply, and the price of goods purchased with that money rises, because there are more units of money chasing the same quantity of production. Milton Friedman explains.
Here's the US M2 money supply over the past ten years, from 2015 to 2025, according to US Federal Reserve data. Click the image for a larger view.
As you can see, the problem has been growing for a long time (decades, in fact). The weakness of the dollar isn't "President Trump's fault", as his political opponents would love to have us believe: it's the fault of all our administrations over the past half-century or so, as they've printed money (or allowed the Federal Reserve to print money) like there's no tomorrow. All those years of neglect and politically correct economic turning-a-blind-eye are now coming home to roost. In particular, the Biden administration's dollar-printing policies are now hitting the market, and making things much worse. See the Milton Friedman video above for the "delayed effect" of money printing.
This leads to a difficult question for you and I as we husband our rapidly depreciating dollars. Should we save them? If we can't get an interest rate equal to or higher than the actual rate of inflation (not the politically correct, watered-down "official" figures, but the reality, which is a lot higher - see, for example, ShadowStats or the Chapwood Index), then holding onto cash means that we're holding on to a diminishing asset. The more we hold, and the longer we hold it, the less it's worth. On the other hand, we have to hold at least some cash, because we've got to buy the necessities of life.
If we try to invest our cash in something of value today that will hold its value tomorrow, we again hit the dilemma that we have to be able to use our assets. If we're hungry, we can have all the gold coins we like in our safe, and all the blue-ribbon investments on the Stock Exchange that we like, but we can't eat any of them. If the price of car tires is going to go up by at least 50% over the next year due to tariffs and other issues, is it perhaps worth buying a set of replacement tires now, so that by the time we need them, we no longer have to find 50% more cash to buy them? What about food supplies? If we set aside long-term emergency food supplies, buying what we actually like to eat rather than tasteless emergency rations nobody enjoys, then in a pinch we can at least eat our food reserves when our monetary reserves are no longer large enough to buy everything we need.
There are no easy answers to these dilemmas, but we need to be thinking about them, and carefully watching the prices of what we buy every day, every week, every month. Each of us will have to make our own decisions about inflation-proofing our assets. For example, I'm in the process of buying a set of tires for each of our vehicles, because I expect their price to increase substantially over the next few months. If the price doesn't change, I won't have lost much except the "opportunity cost" of not having that money available to do other things. If the price shoots up, I'll have gained substantially. If the price drops . . . hey, who am I kidding? Price drops? Yeah, right! Deflation is not a likely prospect right now.
What else might we need that may end up in short supply and/or at much higher prices? Brake pads? Computers? Ammunition? Cosmetics? Medications? Each of us will have our own "essential lists", and we need to consider them in the light of inflation. If we fill them today at current prices, and they cost a lot more tomorrow, we'll come out ahead in the long run.
Food for thought.
Peter
16 comments:
Thank you for the dissertation. So what would happen if the money supply dried up? And could that happen?
A weaker dollar isn't necessarily a bad thing (printing too much money is). It makes foreign investment in the US more appealing.
If a weaker dollar is such a good idea why is Argentina's now stronger peso (after decades of cheap money printing) suddenly such a good thing?
Until CONgress (spelling intentional) STOPS Spending money we Don't have (aka debt bucks) our dollar is becoming Weimar Germany paper marks as in ever worthless.
Michael the anonymous.
I use APMEX.com
Bought my gold when it was around 2K, because the writing was on the wall even back then.
This is going to get exponentially worse, regardless of the politics or who is in charge. In fact there is evidence many of those very same people WANT it to get a lot worse...
Regardless, your 'dollars' are losing value every day. You can easily convert silver and gold 1-ounce coins back into federal reserve scrip any time you want. There's little reason not to.
It's more too it then just them printing too many dollars. You see the same thing in the other major currencies (Euro, Yen, etc.). Gold is way up, silver rather high... but I bought 10 oz. of platinum ten years ago at $960/oz. as historically it's been higher than gold (it's way rarer) and now it's up to ... $973/oz. blah
I don't suppose that Congress in financial distress wouldn't attempt the very same thing FDR did with an EO to acquire gold (and this time maybe silver) for federal reserve's requirements?
But, But, But we'd FIGHT... Yeah whatever, I've been hearing that noise since Obummer and Waco.
Those folks that didn't sell it back (shades of gun buybacks, eh?) were UNABLE to USE their hidden Gold for decades.
I'm SURE (need I add a sarc here) that the Gold Companies Don't keep records of who and what that could be legally demanded by the Feds....
Gold and Silver are not magic. 10K of todays Fiat in gold can be sold (IF LEGAL by Fed Laws) for about the same value 10K in the current rate of exchange.
Unless the LEGAL VALUE of Gold is set at....
This is tangibles investing.... buying something you NEED (not want) at discount is same as gains in market... biggest difference is these gains are not taxed! JWR over at survival blog has covered this substantially.
And fwiw, I think silver, platinum, palladium, copper, and lead are the metals to buy and hold due to industrial uses whether scrap or numismatic. I don't care much for gold - where a lot of physical demand is jewelry, rest is just hoarding best as I can tell.
My wife is incredibly worried about our long term finances. We have a disabled 37 year old kid and that skews things horribly. Her Obamacare is costing us $550 per month. The kid got two crowns and two fillings a few weeks ago and that cost us $3,600. Getting her to the dentist was a disaster as they had to totally put her out due to her constant migraines due to the Lyme colony in her brain.
We have much more in savings than I ever thought possible. Several properties (all paid off except our house) and several stocks that have done incredibly well. Of course, this could all come crashing down which is predicted by several noted contrarians.
https://www.amazon.com/MANDIBLES-FAMILY-2029-47_PB-171-POCHE/dp/000756077X
The wife told me the other day that we will talk about me retiring in two years when I turn 67. I suspect the conversation at that point will be the same answer, we will talk in another two years.
I read an article yesterday that predicted that the Federal Reserve is going to put $7 trillion more in circulation this year. That number just boggles the mind. The explanation was that a boatload of tbills is coming due and the Fed will probably end up buying them.
Precious metals are a good investment, until they decide they can't be owned by private individuals, they find out who bought it, and it's taken by force. Using it will become a crime, and more than just the metals will be confiscated.
There is the concept of speed of money - a trillion $ dropped into the economy is not instanly visible, the effects take a while. How fast is the speed of money-it's been debated. Don't forget the 14 magic money machines that have dumped who knows how much bogus currency into the market. Also, we can create money any time we want, you just give an IOU. Not much done privately, but Banks are now required to keep a very low reserve. I think 1%, so when the Fed issues !0,000, that's 1,000,000 to the banks.
Bottom line, no one has any clue how much is in circulation and it will get worse. Even if Trump manages to put the breaks on, we still have as yet to see the full effects.
Many people survived the Great Depression because they were mostly self sufficient. They grew much of their food, they provided their own heat in winter, in short they did for themselves. Now such people are rare. So the next huge depression...and it IS coming...will see a lot more turmoil, tragedy and death.
The numbers on money supply are inaccurate, because every time a bank issues a loan, they add it, and the money they're repaid, to their assets. And even if the debt is never repaid, it remains an asset. Debt currency, made even easier by nonexistent digital money. Banks are mints, now. As are most creditors. Usury is a hell of a drug, made even worse by fiat currency.
FDR used the Great Depression as an excuse to enable social programs. The coming depression has been engineered for a long time, per the above. It is by people who want to grab power by being the only ones lawfully capable of seizing everything and then controlling distribution. I think Trump is fighting those folks, but the plan is in motion and they're dug in like ticks.
I started buying constitutional silver ten years ago at 13x face, swapped it for gold, sold some for a good profit, kept the rest. The recent price spikng is worrisome in terms of societal peaceandquiet, but as long as technology can't catch up with the immutability/immortality of gold, it will remain a viable store of value. Also because just about everybody on earth thinks it's valuable, and have for millenia. Technology has demonetized silver to the extent of broadening industrial demand. I still buy and trade for Morgan's, Franklins and Mercurys because I think someone will pay me for them later. Their time-horizon is longer than greenbacks, which is what today's currencies have become. "You get what you pay for " depends on the relative value of what you're paying with. Gresham's law is simple enough.
rick m
Your dollar is now worth less, in constant terms from 1933, than the cost of the ink and paper to print it. It's finely-engraved toilet paper.
Everybody's just waiting around for the crash, whether they know it or not. The cost of goods from everywhere else is just the world letting you know they're aware of the con, and they aren't going along for the ride.
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