How This Inflation Plays Out Will Be Different from Anything That Has Come Before It

The comments below are an edited and abridged synopsis of an article by Eric Peters

On August 15, 1971, Nixon abandoned the gold standard, froze wages and prices for 90 days, and imposed a 10% import surcharge. Unemployment was 6.1%, inflation was 4.6% and 10-year yields were 6.58%.

How This Inflation Plays Out Will Be Different from Anything That Has Come Before It | BullionBuzz | Nick's Top Six
There are several coins placed on the old paper chessboard. Inflation game concept.

All sorts of unique things were happening in the world economy; they always are, which is why it’s never the same.

Joe Biden was sworn in as a freshman senator in January 1973. In the 18 months between Nixon ending the gold standard and Biden’s inauguration, gold jumped from $35 to $65 (in the same period, the S&P 500 rose 20%, while the CPI fell from 4.6% to 3.7%). That jump in gold seemed like a big move; having traded between $20 and $35 over the previous 150 years, people were mentally tethered to historical prices. Humans struggle to process rapid change.

The S&P 500 peaked the month of Biden’s 1973 inauguration with 10-year bond yields at 6.46%. The gold price and the value of stocks, which had both risen in the 18 months following Nixon’s ending of the gold standard, diverged radically as inflation started to rise. The CPI started rising before the oil embargo of October 1973. It was lifted in March 1974, with oil having jumped from $3 per barrel to nearly $12. By the end of 1974, gold was $181, the S&P 500 had fallen 48%, 10-year bond yields had risen to 7.48%, and the CPI had jumped to 12.3%.

Inflation, oil and commodities in general remained volatile for the next decade. Gold hit $850 in January 1980. Bond holders and equity holders were destroyed. The really big winners were gold and oil.

There are more differences between the 1970s and the 2020s than there are similarities. Demographics, technology, global trade, union membership, consumption patterns, environmental stresses, geopolitics and domestic politics are all different. There are substantial similarities, too.

But one thing is the same: Human beings. We never change. We despise iniquity. When Biden entered politics in 1973, the rich/poor divide in the US had halved since the late 1920s high. It has since doubled. We are returning to those highs.

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