Learn Liberty VIDEO of the Week: "Gold vs. The Full Faith & Credit of the U.S. Government"

This #LearnLibertyClassic takes a look what it means for money be backed by gold instead of the more abstract "full faith and credit of the U.S. government."
Posted by Learn Liberty on Friday, January 15, 2016

Gold Tumbles To A 2-Year Low...

Gallup Poll: And Americans Say The Safest Long-Term Investment Is...?

Gold?

Why aren't annuities and insurance on this safety-first list???

Government Debt Soars After The U.S. Abandons The Gold Standard

Silver (+937%) Trounces Gold (+469%) & the S&P 500 (+7.5%) During the Past 10 Years...

1st Quarter 2011 Stats: Oil, Gasoline & Gold Jump

  
The price of a barrel of oil was $106.72 as of March 31, 2011, up +16.8% from its $91.38 per barrel price as of December 31, 2010 (source: CME Group).

The national average cost of a gallon of gasoline increased by +54 cents during the quarter, rising from $3.07 a gallon on December 31, 2010 to $3.61 a gallon as of March 31, 2011 (source: AAA).

The price of gold, which set an all-time nominal record close of $1,421 an ounce (i.e., non-inflation adjusted) on the December 31, 2010, set a new record close of $1,439 an ounce on March 31, 2011 (source: CME Group).

 

The Primary Reason Why The Bull Market In Gold Is NOT Over...

Interest rates remain BELOW the cost of inflation.

The current level of U.S. interest rates remains a hugely bullish factor for gold prices.

Real (inflation-adjusted) rates in the United States remain negative. Ever since the credit crunch three years ago, the Federal Reserve has been committed to fighting falling prices. That’s why the central bank has kept interest rates so low.

This means investors are not being compensated for holding cash or short-term fixed-income securities because rates are below the cost of inflation. Since the dollar pays almost nothing to its holder, it’s actually a liability to carry.

That alone is enough of a reason to continue to own gold and gold stocks.

The yellow metal yields nothing. But it has intrinsic value. The dollar has no intrinsic value and has lost its purchasing power every decade since Nixon broke the gold window in 1971.

Chart of The Day - Dow Priced in Gold Suffers -80% Plunge

Chart & Analysis Courtesy of Chart of The Day

For some perspective on the stock market, today's chart presents the Dow divided by the price of one ounce of Gold. This results in what is referred to as the Dow/Gold Ratio or the cost of the Dow in ounces of Gold. 

For example, it currently takes 9.0 ounces of gold to "Buy the Dow." This is considerably less
(-80% less) than the 44.8 ounces it took to buy the Dow back in 1999. 

While the actual Dow currently trades significantly higher than its March 9, 2009 lows (currently up +60%), the most recent rally that occurred in the Dow priced in gold is fairly similar to several bear market rallies that have occurred since late 1999. It is also of interest that the Dow (priced in Gold) is once again testing resistance of its accelerated downtrend.

Chart of the Day - Gold Bull Market Persists

Chart & Analysis Courtesy of Chart of The Day

Today's chart provides some long-term perspective in regards to the gold market.

 

As today's chart illustrates, gold has been in a strong bull market since 2001.

The pace of that upward trend increased beginning in mid-2005. Following the financial crisis of late 2008, gold surged once again.

While gold made another record high in June, it still trades significantly below resistance (dark red line) of its upward sloping trend channel.

In the end, with Gold currently trading near $1,250 per ounce, Gold has more than quadrupled in price during its nine-year bull market.

The Cost of The Median Single-Family Home in Ounces of Gold

This chart represents the median single-family home price divided by the price of one ounce of gold. 

This results in the home / gold ratio or the cost of the median single-family home in ounces of gold. 

For example, it currently takes 153 ounces of gold to buy the median single-family home. This is considerably less that the 601 ounces it took back in 2001. 

When priced in gold, the median single-family home is down -75% from its 2001 peak and remains well within the confines of its 5-year accelerated downtrend. 

"Gold is forever. It is beautiful, useful, and never wears out. Small wonder that gold has been prized over all else, in all ages, as a store of value that will survive the travails of life and the ravages of time."  - James Blakely

Chart & commentary courtesy of www.ChartofTheDay.com

WSJ - Worst Decade in 200 Years for Inflation-Adjusted Returns

Many investors realize that stocks have been among the worst investments of the past decade. But they may not realize quite how bad the decade was, because most people forget about the effects of inflation.

Controlling for inflation takes extra work and makes stock gains look punier, so it is easy to see why stock analysts almost never do it. The media almost never do it either.

Despite its 2009 rebound, the Dow Jones Industrial Average today stands at just 10520.10, no higher than in 1999. And that is without counting consumer-price inflation. In 1999 dollars, the Dow is only at about 8200 and would have to rise another +28% or so to return to 1999 levels. Using today's dollars and starting at 10520.10, the Dow would have to surpass 13460 to get back to its 1999 level in real, inflation-adjusted terms.

Since the end of 1999, the Standard & Poor's 500-stock index has lost an average of -3.3% a year on an inflation-adjusted basis, compared with a +1.8% average annual gain during the 1930s when deflation afflicted the economy, according to data compiled by Charles Jones, finance professor at North Carolina State University. His data use dividend estimates for 2009 and the consumer price index for the 12 months through November.

Even the 1970s, when a bear market was coupled with inflation, wasn't as bad as the most recent period. The S&P 500 lost -1.4% after inflation during that decade.

That is especially disappointing news for investors, considering that a key goal of investing in stocks is to increase money faster than inflation.

But other things do get measured in real dollars. When economists report whether the economy is growing, they account for inflation. When analysts judge long-term gains in commodities such as gold or oil, they often adjust for inflation, noting that gold hit a record this month in nominal terms but remains far from its 1980 record in real terms. Because analysts almost never do the same with stocks, it leaves investors with an exaggerated view of their portfolios' performance over time.

"Looking at returns on a nominal basis can be very misleading," says Richard Bernstein, a former chief investment strategist at Merrill Lynch who is launching a New York money-management firm called Richard Bernstein Capital Management. He checks inflation-adjusted performance to monitor investments' real value.

Whoa! - The Money Supply Explodes +120%!

The money supply has gone parabolic!

In the past year the Federal Reserve has increased the money supply by a whopping +120%. That's never happened before. Recall that in the 1970s the Fed increased the money supply +13% and inflation soared into the double digits.

Gee, I wonder what inflation is going to be like after the money supply more than doubles? 

Now you know one of the primary reasons why:

1. Savvy investors and central banks around the world are exchanging this flood of depreciating dollars for gold, commodities and other hard assets.
   
   
2. India just bought 200 tons of gold and is thinking about buying 200 more.
   
   
3. Gold bullion posted another new high today, closing above $1,200 for the first time!

Chart courtesy of www.StockCharts.com

Chart of the Day: Gold & The U.S. Dollar

Chart Courtesy of www.ChartOfTheDay.com

"Regardless of the dollar price involved, one ounce of gold would purchase a good-quality man's suit at the conclusion of the Revolutionary War, the Civil War, the presidency of Franklin Roosevelt, and today." - Peter A. Burshre

"Thanks in part to mounting U.S. deficits and a weak U.S. economy, the U.S. dollar continues to trend lower. After all, a virtual collapse of the banking sector does have its consequences. For some perspective, today's chart illustrates the current trend in the US dollar (blue line) as well as that other world currency, gold (gray line).

As today's chart illustrates, the performance of the U.S. dollar has varied inversely to that of gold since the latter stages of the credit bubble. It is worth noting that the U.S. dollar is currently testing resistance of its downtrend (red line) while gold makes record highs."

http://www.chartoftheday.com/20091125.htm?A

Gold Standard Price of Gold = $7,648 an Ounce! - WSJ.com

In January 1980 gold bullion posted its inflation-adjusted record high at $2,290.

If the U.S. dollar were back on the gold standard, notes Société Générale analyst Dylan Grice, then gold would have to be priced at $7,648 an ounce in order to fully back all of the dollars in circulation. 

That calculation is based on the U.S. monetary base of nearly $2 trillion and U.S. government gold holdings of 261.5 million ounces.

"You are basically short trust in government when you buy gold," says Mr. Grice, who suggests gold may be in the early stages of a long-lasting speculative mania. "Gold goes higher until policy makers get ahead of their problems."

WSJ.com - Ahead of The Tape - Mark Gongloff - November 20, 2009

JGH: Obviously, this doesn't mean that gold is going to make a run at $7,000 an ounce any time soon. But it does mean that gold has plenty of room to move higher and is not necessarily overvalued at over $1,150 an ounce.

Health Care Reform Update:

According to the Americans for Tax Reform, the Senate's 2,047-page  health care bill uses the word "tax" no fewer than 183 times, taxable 164 times, "taxes" 17 times, "fee" 152 times and "penalty" 115 times.

And this is heath care "reform" that's supposed to lower costs? How? By taxing the health care consumer to death?

Doesn't it strain credulity to believe that Congress is going to give 30 million additional people health coverage, cut the deficit, improve health care quality, increase access and reduce costs with government taxes, fees, penalties and mandates?

Gold Bullion ETF & TIP ETF Are Moving in Concert

Chart courtesy of www.StockCharts.com

Because inflation expectations are rising, gold bullion, as depicted by the streetTRACKS Gold Trust Shares (GLD), is trending higher to new alltime highs. That's typical in a weak dollar climate. Unfortunately, GLD is highly volatile and it doesn't pay any interest.

The good news for conservative investors is that because Treasury Inflation Protected Securities (TIPs) are rising in tandem with gold bullion (see chart), TIPs offer a more conservative hedge against inflation combined with the bonus of a dividend payment (which is quite low at present) attached.

The most popular TIP ETF is the iShares Barclays TIPS Bond Fund, symbol TIP.