With all the uproar in the world of finance, and the unbelievable steps being taken by policy makers to address multiple crises, one financial asset (Gold) is quietly doing it’s job. It really is amazing, when you think about it. While most financial engineering efforts seem to be expended to prop up financial assets such as stocks, bonds, oil, or real estate, the efforts expended towards Gold are usually an attempt to take it lower. And yet, Gold rises. Without a wimper, or nary a cry, one of the densest/heaviest metals known to man has the ability to levitate in thin air, with no direct engineering help from anyone. It just sits there, in the vault, and protects the purchasing power of whomever owns it - regardless of race, color, or creed. Gold is the real “equal opportunity asset”, used the world over to bring stability to both governmental and personal finances.
Stimulus this, and stimulus that. Here a stimulus, there a stimulus, everywhere a stimulus. The government of late seems to be promising cash to anyone who will turn in an application. Favorable financial access that used to be reserved for the most politically favored industries has been opened up to seemingly everyone - employees, small business owners, municipalities, churches even. The stated goal is to help keep everyone/our society afloat. While it remains to be seen how society will ultimately be affected, the unintended result has been to cause Gold to float ever higher.
Now I’m not saying that the unprecedented efforts being taken to address the spillover effects of the COVID-19 crisis are unwarranted. I don’t pretend to know. Ask 100 people, and you will find at least 55 different opinions on the matter. But what we know for certain, is that those who own precious metals seem to be the beneficiaries of the gains resulting from these efforts. We wrote a couple weeks ago about how the COVID-19 virus was affecting precious metals prices. As the country and its’ leaders now begin to focus on restarting the economy, Gold and Silver seemed poised to benefit from policies enacted to deal with the aftermath as well.
Gold vs Stocks
But Gold’s ability to provide financial certainty did not begin with this crisis, nor with any policy response to this crisis. Saw a chart the other day comparing the performance of the S&P 500 stock index, to Gold. The chart began in January of 1999, and ended on April 9, 2020. Stocks (as represented by the index) were up 120%, over that period of 255 months. This is an average annual return of 3.72%. But what about the effects of a declining Dollar? In this article, we examined the effects of a rising stock market, combined with a declining Dollar, over additional time periods. The effect is rather alarming. Stocks are often touted as the “inflation fighter”, because you can often end up with more Dollars than you started with years earlier. But when those Dollars have been devalued to a greater degree than the stock market rose, the purchasing-power protection is simply not there.
Granted, 3.72% is better than 1.2% offered by “insured” bank deposits over the same period, but purchasing power was still being eroded. While the S&P 500 index was 120% higher, as mentioned above, Gold was 470% higher, in Dollar terms. If the chart went through today (April 15), Gold would be over 500% higher. But even at the April 9 valuation of 470%, that is an average annual return of 7.31%. As mentioned in our book, “The 7.0% Solution”, this is the type of performance we need to protect our purchasing power from the ravages of inflation. While official inflation is often touted as being between 1-3%, the inflation rate experienced by the average American is closer to 5-7%. This was explained further in a discussion we shared about the Chapwood Index, and why that is a more accurate measurement for inflation.
Why Inflation is Rising - What it Means for Gold
Today, there are perhaps more reasons for inflation than ever before. Many have been under some type of lockdown, or stay-at-home directive. This means that while production of goods has been hindered world wide, the production of currency (via stimulus plans) has continued. So while there are fewer goods being produced, there are just as many Dollars available to pursue those goods. This tends to cause the price of those items to rise, in the natural order of things. But the currency spigots are being opened wider in some cases than they normally are. This means that in some sectors there are MORE Dollars chasing FEWER items, which tends to ramp up inflation beyond the normal amount.
When we also realize that some of the production being reduced is by precious metals miners and refiners, you can guess what happens next. Besides the indirect inflation in the cost of overall goods and services that tends to lift the price of Gold and Silver, we now have direct inflation, due to an impacted supply of precious metals available for the large investors beginning to wake up to what you probably already knew.
Solutions of Yesteryear Still Effective Today
Which brings us to our final point - what can we do in response to this information? While many suppliers are struggling to source supply, the United States Gold Bureau continues to have both the Bullion and Investment Grade Gold and Silver products available to meet client’s needs. While it might be difficult right now for billionaire hedge-fund managers to secure enough Gold to protect their clients, we as individuals are still able to secure what we need to protect our family’s financial future. Keep in mind, though, that as more big fish wake up to the power of precious metals to levitate when all else is sinking, it will make it increasingly more expensive for everyone looking to purchase.
For those of us who have owned Gold for quite awhile, we can find comfort in knowing that the United States Gold Bureau is also a purchaser of quality precious metals (both Bullion and Investment Grade), and stands ready to offer you a fair pricefor any cash needs that you may have. Be sure you always deal with a legitimate precious metals partner like the United States Gold Bureau, as scams currently abound with the metals are soaring. You don’t want to wait until you desire to cash in your metals, to find out that your “precious” metals were not what they were supposed to be. I believe this time period we are in today won’t last forever - it will end. And when it does, we will be glad to have had Gold and Silver with us on this journey.