The Gold Rush Continues: 6,700% and Counting
Chart of the Week #21
Gold's in the spotlight this week, and for good reason. The precious metal just broke its all-time high, while the Fed pivoted with a hefty 0.5% rate cut. Meanwhile, gold stocks are still trading at surprisingly low prices. With all these developments, gold is the perfect choice for our weekly feature.
Today's chart shows gold's price trajectory over the past 50 years since Nixon cut the dollar's last tie to gold in 1971 (which ended the Bretton Woods system set up after World War II).
Since 1971, when gold was priced at a modest $35 per ounce, its value has skyrocketed by over 6,700%, reaching a peak of over $2,500 just recently.
This extraordinary ascent shows why gold is still the go-to for keeping wealth safe and hedging against every crisis under the sun. From the Bretton Woods collapse to the Plaza Accord (where G-5 nations agreed to depreciate the U.S. dollar), from Black Monday to the Dot-com bubble pop, through the Global Financial Crisis and COVID-19, the yellow metal has stepped up to the plate every single time.
Gold occasionally tested our patience, sure. Yet, without fail, its gains proved the wait worthwhile.
So, what's next? The graph leaves us hanging with that tantalizing question.
At writing, gold is up an impressive 25% this year. It's among 2024's top-performing commodities. And regardless of any market fluctuations ahead, I'm convinced its ascent will continue…
In the short haul, you have the Fed falling back on their old playbook: easy money. And you can bet that'll kick inflation into high gear again. Sure, we won't feel it right away, but when it hits, it'll hit hard. Bad news for most folks, but great news if you've got gold in your pocket.
Keep in mind, there’s also a strong chance we're headed toward stagflation — that toxic mix of high inflation and low economic growth peppered with geopolitical tensions and financial uncertainty, much like what we saw in the 1970s — and it could happen as soon as 2025.
And what performed exceptionally well back then? You guessed it—gold, rallying from about $100 to $850 (roughly $2,670 in today's dollars). That’s a gain of about 8.5 times.
What about the long run?
Well, think about the massive government debt, skyrocketing interest rates, central banks buying up gold, and the growing trend of de-dollarization. All of these things will continue to push gold prices up.
The bottom line is, I don’t know if gold will hit $3,000 per ounce or $10,000, but it's definitely headed much higher in the coming years.
Regards,
Lau Vegys
I'm a bit conflicted about gold's rise. On October 28, 2023, I put a significant chunk of money into a prop bet offered by Morgan Stanley. The terms were:
1. The capital is tied up for 2 years.
2. The funds are tied to GLD for those 2 years.
3. if GLD is down at the end of 2 years, you get all your principal back (meaning 0 downside).
4. If GLD is up by no more than 40%, you get whatever it rose to plus your principal back.
5. If GLD ever touches 40% up in that 2 year period, then you get a 20% return plus your principal.
GLD is already up 30% since then. At this point, 40% looks inevitable. A 20% return is better than what I'd get in treasuries. Still, MOST looks to make out pretty well on this prop bet.
On FRIDAY, 19 APRIL 2002 Bill Bonner wrote a piece called "THE REVENGE OF GOLD"
Here is an excerpt,
"We’ve been urging you to buy some gold, too, dear reader. Not because we know something...but because we don’t.
There are so many things we don’t know, we hardly know where to begin to describe them. We do not know how long the world will continue to accept dollars in exchange for goods and services, for example. Nor do we know how long American consumers can continue to spend money that they don’t have. Nor do we know when real estate markets might turn downwards, ending the illusion of additional wealth caused by rising house prices. But in a world with so many unanswered questions, gold seems the perfect thing to own."
I followed his advice.