Gold again hit all time high prices of $3,910 an ounce yesterday.
It’s looking increasingly likely it will break $4,000 by the end of the year – an almost unimaginable number as recently as a year ago when prices were still well under $3,000…
Marketwatch reported that gold is soaring due to “uncertainty and chaos” in the market. Whenever gold rises, there’s always someone who can point to a direct and obvious cause for the rise. This time, the story is that gold is rising due to the US Government shutdown.
That explanation might be true for the latest run from $3,800 to $3,900, but these stories never seem to include how gold got from $2,700 a year ago up past $3,800 in the first place.
The overarching narrative is not of uncertainty or chaos – but of the certainty that the US dollar is being aggressively devalued and that gold is a form of money without peer.
Next week, some new anecdote in the news will create another story about why gold eked out another $50 in gains. Two weeks ago, gold was rising in anticipation of Fed rate cuts. A month ago Al Jazeera reported, “The gold market is booming as investors seek a safe haven for their investments amid global economic uncertainty.”
But decades from now, the larger story will be much more obvious. Gold is soaring because the US government has racked up the largest debt in world history and is being forced to inflate the dollar in order to meet interest payments.
For gold investors, this development has been like an unstoppable train that we’ve seen coming down the tracks for years or even decades. You simply do not get to $3,900 gold based on trivial news headlines.
There’s always uncertainty. There’s always war. There’s always some Federal Reserve announcement on the horizon. The government even shuts down every now and then.
The story for gold is much larger than a headline you and I will forget about next week.
It’s the result of a modern day monetary experiment that is slowly failing right before our eyes: the idea that paper and even non-existent digital money is a sustainable system to build an economy on. Gold investors know that man-made money is fraught with moral hazard. He who gets to create money from thin air has an inescapable temptation to direct in ways that benefit the few over the many.
And it’s not even a new idea: the economist Richard Cantillon observed how monetary policy impacts asset prices and favors certain people over others back in the 1700s. The Cantillon Effect states very simply that the closer you are to money creation, the more you benefit.
Now after 50 years of central bank hijinks, gold is again returning to the forefront. People may not totally realize it, but gold is simply the best form of money yet discovered. Everything else is either not nearly as good or a total con.
So it’s not just because of a government shut down or Federal Reserve policy or war in some place that seems to always be at war – gold is rising in price as a direct, linear response to the failure of paper money.
And corrections and consolidations aside, we could just be getting started. A year from now we may be looking at $5,000 gold and we’ll have some pat and convenient story to explain the price movement.
And a year from now it’s likely that our gold stock positions are up another 100% or more. No headline explains this kind of price action. This is a major, ongoing catastrophe that is going to end poorly for people who don’t have the fortune or foresight to get money off of the train tracks, and into gold positions.
Invest accordingly.
Best,
Garrett Goggin, CFA, CMT
Chief Analyst & Founder, Golden Portfolio