Gold in The Age of Inflation
The comments below are an edited and abridged synopsis of an article by USA Gold
The Fed wants inflation; the markets await it. Investors and consumers worry about it. The Fed thinks it will be transitory; others believe it will persist. But we have lived with inflation for a long time. It began in August 1971, when the US disengaged the dollar from gold and ushered in the fiat money era. Since then, the inflationary process has eaten away at the purchasing power of money. Now, it is about to accelerate. Ignoring it will be dangerous.
This article includes two charts. One is a myth-buster: Gold has outperformed stocks during the fiat money era. Gold is up 4,500% since 1971, while stocks have played second fiddle at 3,375%. The other reveals the pernicious debasement of the dollar and gold’s role as a hedge against it. The dollar has lost 85% of its purchasing power since 1971, while gold gained nearly 4,500%. If that doesn’t serve as vindication of gold’s portfolio role in the era of fiat money, what will? At the same time, stocks are closer to a top than a bottom, and gold is closer to a bottom than a top.
Up for discussion: Ross Norman sees the current gold price as the mother of all buying opportunities; Michael Burry warns of the mother of all stock market crashes; the six keys to successful gold ownership; Howe says this Fourth Turning will go to 2030; big physical buyers go to the sidelines when paper traders push the prices south; gold is an obvious candidate as a safe asset for the times; Larry, Larry, quite contrary; and final thoughts.
Inflation is a process, not an event. Take the nearly 200-year debasement of Rome’s silver denarius. Romans who hedged that process by going to gold at nearly any point along the way ended up preserving some, if not all, of their wealth. Those who did not, suffered. In the inflationary process, the line between cause and effect is not always straight, and its timing difficult to discern. History shows that runaway inflation arrives suddenly, without notice, and with a vengeance. So it pays to view gold as a permanent, constantly maintained aspect of an investment portfolio. “A change of fortune,” said Ben Franklin, “hurts a wise man no more than a change of the moon.”