“When the pundits say that gold is dead, it’s time to look for a resurrection.” — Richard Band (“Maxims of Wall Street,” p. 153)
This week, I was cleaning out the garage of my Florida home and discovered a treasure box worth the price of gold.
Before telling you more about my discovery, let’s talk about gold and silver and why they could head much higher.
The most common question I get today is “With inflation raging at a 40-year high, why isn’t gold moving up?”
I myself have pondered the same thing. Could it be a conspiracy by the Deep State to suppress gold? Is it because the Federal Reserve has been aggressively raised interest rates, making the U.S. dollar strong and the yellow metal less attractive compared to income-producing assets? Is it because Bitcoin and other cryptocurrencies have replaced gold as the ideal inflation hedge?
It could be all of the above.
Why Inflation is a Permanent Feature of Our Society
From 1982 to 2022, a forty-year-long span, we enjoyed a period of declining inflation and interest rates. Price inflation never went away, however. We benefited from disinflation — a slowing of the inflation rate — but not outright deflation.
The fact is that price inflation has become a permanent feature of the U.S. economy. It didn’t used to be that way. What made the difference?
Several years ago, Harvard economists Ken Rogoff and Carmen Reinhart created a remarkable chart (see below). They estimated the Consumer Price Index (CPI) in the United States from 1776 to present. It showed that inflation flared up during various wars, but always dropped back down after the war ended.
But that all changed after World War II ended in 1945. Thereafter, inflation, as measured by the CPI, kept rising.
CPI Inflation in the United States, 1775-2021
Here’s my question: “Why did the pattern of inflation change after World War II?”
Was it due to:
A. Never-ending wars after 1945.
B. The creation of the Federal Reserve.
C. Adoption of Keynesian economics (deficit spending, easy money).
D. Going off the gold standard.
Many gold bugs chose (B) and blame the Federal Reserve, which was founded in 1913.
But Rogoff and Reinhart said that “going off the gold standard” was the primary cause. Note that price inflation bottomed in 1933, when we went off the gold standard for the first time, and then inflation really took off after President Richard Nixon severed the tie between gold and the dollar completely in 1971. The monetary discipline of the gold standard ended, and we have experienced permanent inflation ever since.
In the Long Term, Gold is a Superior Inflation Hedge!
What’s the best way to hedge against permanently rising prices?
Jeremy Siegel, the “Wizard of Wharton,” has shown that U.S. stocks are not a good inflation hedge in the short run, but do much better in the long run. (See my edition of Skousen CAFÉ here.)
Gold is also a good inflation hedge, as the chart below demonstrates. In fact, since going off the gold standard in 1971, the precious metal has actually outperformed CPI inflation. It’s now a superior inflation hedge.
Why Gold is Likely to Move Higher
The times, they are a-changin’.
Both gold and silver seem to have bottomed and are moving higher. Gold is now headed back to $1,800 an ounce, and silver has done even better, jumping from $18 to $22 an ounce, over the past three months.
While stocks have entered a bear market, with tech stocks down over 30%, precious metals have turned out to be a decent performer in 2022, as they are down less than 3% for the year.
The greatest challenge facing commodities and stocks in 2023 will be the tight money policy being pursued by the Fed and other central banks. Not only are we facing a negative yield curve, where short-term interest rates are higher than long-term rates, but the quantity of money (M3) is actually declining for the first time in forty years.
The Growing Debt Crisis
The Fed’s overzealous action could result in a recession next year. If it continues, I suspect we will suffer a debt crisis, especially in foreign bonds tied to the dollar.
The Fed should also be worried about the ballooning national debt, now over $31 trillion — due to profligate deficit spending by the Biden administration.
Nobody in Washington cared about the national debt when interest rates were near zero.
But with interest rates rising, interest payments on the federal debt will hit $400 billion this year, and they will skyrocket to $1.2 trillion a year by 2032, according to the Congressional Budget Office.
Let there be no doubt: We are headed for another monetary crisis.
To protect yourself against this coming debt crisis, I recommend you take a position in gold, up to 5-10% of your portfolio. Think of gold as an insurance policy against bad times.
A Treasure Box of Paper Gold Discovered in my Garage!
In 1977, I wrote my Ph.D. dissertation at George Washington University on monetary economics and the gold standard. It was published by the Mises Institute in 1988 under the title, “Economics of a Pure Gold Standard,” which Austrian economist Murray Rothbard called “a neglected gem.”
The book is still relevant today. It outlines the pros and cons of various types of gold standards, including a 100% classical gold standard (as promoted by Rothbard) to the fractional reserve gold exchange standard (as advocated by Steve Forbes). It also discusses the possibility of free banking (recommended by Larry White) and a 100% paper money standard (as endorsed by Milton Friedman).
Good news! In cleaning out my garage at my Florida home, I discovered an entire box of pristine copies of “Economics of a Pure Gold Standard” published by the Mises Institute in 1988.
“It’s gold, Jerry. Gold!”
These books have been out of print for years and are hard to find.
There are 37 copies in the box. I’ve decided to sell these copies on a first-come-first-serve basis to my subscribers for only $35, including postage. Why $35? That’s the long-time price of gold prior to 1971, when President Richard Nixon took us completely off the gold standard.
I’ll autograph and date each one, and mail them to you for free if mailed inside the United States. To order, go to www.skousenbooks.com.
Orange County, California, AAII Investment Meeting, January 14, 2023: I’ll be speaking at the Orange County, California, chapter of the American Association of Individual Investors (AAII) on Saturday, Jan. 14, at 9 a.m., on the topic, “Investing in 2023: Should You be a Bull, Bear or Chicken?” The address where the meeting will be held is: The Center of Founders Village, 17967 Bushard St., Fountain Valley, CA 92708. To reserve a spot, email Stephanie at firstname.lastname@example.org. There is a nominal charge for attending.
EconoSummit, March 11-12, Ahern Hotel, Las Vegas: Once again, my wife, Jo Ann, and I will be speaking at this popular annual event, sponsored by the Investment Club of America. Two keynote speakers have been confirmed: John Fund, senior writer for National Review and an expert on geopolitics, voter fraud and the upcoming 2024 elections; and Floyd Brown, publisher of the Western Journal and author of the new book CounterPunch. Other speakers will be added soon. The price is only $99 if you register before Jan. 1. (After that, it goes up to $199.)
More importantly, I urge you to reserve your room at the Ahern Hotel as soon as possible for only $159 a night. Call -1-725-414-4800 and use the code HighMark to get the discount. Our conference is during March Madness, when hotel rates will surge to over $300 a night. So, I recommend you book your room now. For more details, go to www.econosummit.com.
Goldenly yours, AEIOU,
You Blew It!
California and the Feds Favor Electric Vehicles (EVs) But Hybrids are Better
I very much enjoyed watching the latest John Stossel video on “Inconvenient Facts” about electric vehicles EVs. He and his engineering expert, Mark Mills of the Manhattan Institute, reveal the hidden problems of EVs. They are not as “green” as believed.
But what about hybrids, which are cars that run on gasoline and electric power?
In a recent press release, Consumer Reports ranks them #2 in reliability, slightly behind gas-fueled automobiles.
This report also discusses the subject.
I’m dumbfounded that government officials aren’t encouraging hybrids — they are the best of both worlds, because you don’t have to plug in these vehicles to get electric power, they get better gas mileage and they are more reliable. What’s not to like?
Instead, these clowns in Washington and California are pushing EVs only — a big mistake.