The perfect storm for gold
Nick Barisheff of BMG Group Inc. says This is the perfect time to allocate to gold based on all the factors and data during this “perfect storm for gold”.
In December 1997, the Financial Times ran an article entitled “The Death of Gold”. Since then, the gold price in US dollars has increased 519 per cent, from US$288 to US$1,780. Today, after many political events and crises we have evidence of the continuous, and in many ways spectacular, growth of the price of gold. This confluence of many current events is creating a perfect storm for gold to increase dramatically more than we imagined.
Currency devaluation
Typically, currency devaluation is always at the heart of a rising gold price. This has been taking place in all of the major fiat currencies, resulting in an average annual price increase in gold of more than 10 per cent since 2000. Since 1900, all major fiat currencies have been devalued by more than 90 per cent.
To understand currency devaluation, it is necessary to understand that all currency is created by governments issuing debt and then the central bank monetizing that debt by printing the currency.
In 1960, the US federal debt to GDP stood at 52.2 per cent, whereas today it has grown to 125.9 per cent. The Federal Reserve has increased its balance sheet by a historically unprecedented amount of over US$7.5 trillion since 2008. Because of this central bank policy, all western currencies are being devalued and this in turn leads to inflation.
Price inflation follows
As currencies are devalued, price inflation will inevitably follow. Inflation, a term that has always been used everywhere and especially in North America, means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to cheque. But people today use the term “inflation” to refer to the phenomenon that is an inevitable consequence of inflation, and that is the tendency of all prices and wages to rise.
In October 2021, consumer inflation jumped to a four-decade high, the highest since the days of runaway inflation in the early 1980s. Headline year-to-year GDP inflation hit a 38-year-plus high of 4.53 per cent.
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This is an edited version of an article that was originally published for subscribers in the January 21, 2022, issue of Investor’s Digest of Canada. Read on to learn more about how you can profit from the award-winning advice subscribers receive regularly in Investor’s Digest of Canada.
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