What’s Next For Gold Is Always About The US Dollar

Since the origin of the Federal Reserve in 1913 the US dollar has lost ninety-nine percent of its purchasing power.

Not coincidentally, but in direct reflection of the dollar’s loss in purchasing power, the price of gold has multiplied one hundred fold from $20.67 oz to $2060 oz as of August 2020.

The chart (source) below shows the ever-increasing price of gold over the past century…

 

GOLD PRICE LINKED TO US DOLLAR 

When President Nixon suspended convertibility of the US dollar into gold in 1971, his action ushered in a decade-long period of US dollar weakness and rejection.

The effects of inflation created over the previous four decades, initially in an attempt to extricate us from the economic depression of the thirties, then to fund the country’s expenses relative to its involvement in WWII, etc., came roaring to life in the form of higher prices for all goods and services.

The rapid rise in the prices for goods and services in the United States was a reflection of the loss in purchasing power of the US dollar. Consequently, the dollar price of gold moved considerably higher and peaked intraday in January 1980 at $843 oz. The average monthly price for gold in January 1980 was $677 oz, which is reflected on the chart above.

The 1970s were a catch-up period for the price of gold relative to the US dollar’s loss in purchasing power. The $677 price for gold indicated that the US dollar had declined by nearly ninety-seven percent  at that point since the origin of the Federal Reserve.

After that, the Fed found religion and managed to temporarily halt the dollar’s decline. A new period of prosperity and economic growth buoyed the dollar.

The effects of inflation were surprisingly mild for the next two decades. A stronger dollar showed up in lower gold prices. By 1999, the gold price had fallen to $252 oz., a decline of seventy percent.

Beginning in 2001, the US dollar began a significant decline on world markets lasting until 2008. During that time the price of gold rose from $256 oz to as high as $1023 oz.

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Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN'T, AND WHO'S RESPONSIBLE FOR IT and  more

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