American Consequences - September 2021

A common metric used to track inflation is the Consumer Price Index (“CPI”). The CPI rate spiked to 4.2% in April – up from 2.6% in March and well above the Fed’s long-term target of 2%. The most recent measure of the Personal Consumption Index (one of the Fed’s favorite metrics for measuring inflation) rose 3.6% since last July – matching the highest level in 30 years. It’s still a far cry from the 15% we saw in the early 1980s. It doesn’t really matter in either case, though. Whether inflation subsides tomorrow or a decade from now, it doesn’t change our main reason for owning physical gold... The value of the U.S. dollar is always being eroded . Over the past century, an ounce of gold will almost always allow you to get a custom-tailored men’s suit. And 20 ounces could buy you a new car. Yet, as we all know, the value of these items priced in U.S. dollars has skyrocketed over the same period. Remember, even before Fed Chairman Jerome Powell acknowledged that he was willing to let the economy “run hot” in August 2020, the central bank’s longtime inflation target was 2%. In other words, even in normal times, the dollar is slowly bleeding value every single day.

“insurance” for our portfolios against an impending economic crisis. As regular readers know, gold has proven to be a reliable store of value throughout history... For example, over the past century, an ounce of gold will almost always allow you to get a custom-tailored men’s suit. And 20 ounces could buy you a new car. Yet, as we all know, the value of these items priced in U.S. dollars has skyrocketed over the same period. That’s because the value – and thus the purchasing power – of the dollar is continuously being inflated away by our federal government. This trend became more pronounced after former President Richard Nixon removed the dollar’s gold backing in 1971... As a result, consumers suffered a dramatic rise in inflation in the late 1970s and early 1980s. Meanwhile, the nominal price of gold soared to around $800 per ounce in 1980. That equates to about $2,800 per ounce in terms of today’s dollars – which makes it the highest “real” price for gold in history. These days – thanks to out-of-control spending from the U.S. government both before and during the COVID-19 pandemic, and years of artificially low interest rates – we’re seeing inflationary tailwinds once again... Analysts and experts can’t agree on whether this bout of rising inflation is simply “transitory” – as the Federal Reserve keeps saying – as we get back to normal... or whether it will continue to rise for several years.

American Consequences

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