The Dollar Suffers From Monetary Coronavirus

You haven’t just been quarantined these past few months.

You’ve also been robbed!

It’s true…

While you’ve been cooped up because of coronavirus, your purchasing power has slowly eroded.

That means your paycheck is worth less. Your money in the bank is worth less, too.

And if whatever else you own hasn’t appreciated in value over the six months, you’ve been robbed some more.

It all comes down to those funny pieces of green paper that we’re told have value.

Since January, that value has dropped by 17% or so, according to the only metric that really matters.

But it’s not a recent development. The U.S. dollar has been sick for a long time.

It’s afflicted by a monetary virus — one that’s caused more lasting damage and will wreak more havoc than COVID-19 ever could.

Luckily, the cure is pretty simple.

Let’s dig into this…

To understand the dollar’s falling value, you need to look at gold.

First, recent history.

In early 2019 – just last year – gold traded in the $1,300 range. Prices then took off in June, only to fade last fall. It started moving up again last December and was on a roll in early 2020.

Gold’s rise was interrupted only — for a short while — by the March selloff, when people sold gold to raise fast cash to pay off margin calls.

In all, gold has gone from $1,518 per ounce to $1,782 since Dec. 31, 2019.

That’s a move of over 17% in six months; in the first half of this year.

That’s great if you own gold. But remember that the price of gold is the inverse of the value of the dollar.

So another way to look at is that the value of your dollars has fallen by 17% since the start of the year!

This kind of value-slide is not exactly a recent development, though. Just look at the chart.

Gold price

Gold price, January 2019 – Present. StockCharts.com.

You can see the bars that represent gold’s ups and down. Every jump higher is your dollars losing value.

But I want you to look at the solid colored lines. They represent gold’s “moving average” (MA), indicating the general strength of a trend.

The blue, 50-day MA is firm, steady and on an upward trajectory. The red, 200-day MA is also nicely on the upside. Even the March mini crash barely touched these lines.

This chart also demonstrates that gold was rising well before anybody ever heard of some strange virus infecting people in faraway Wuhan, China — let alone before COVID-19 became a global household word.

So gold’s price move in recent months is not “just” a response to the coronavirus pandemic. Gold was already moving.

In fact, gold has been on the move since January 2016.

The long-term low for the gold price, over the past decade, was in December 2015, at $1,050 per ounce. Take a look for yourself.

Gold price, December 2015

Gold price, December 2015 – Present. StockCharts.com.

You can see how gold began its run-up from $1,050, beginning with an upward burst in the first part of 2016. Then there was a period of market consolidation in late 2016.And through 2017 and 2018, gold traded in a range.

Meanwhile, look again at the 50-day (blue) MA and 200-day (red) MA lines. In 2016 and early 2017, the long-term trend (200-day MA) flattened out. Then we see about two years of 50-day and 200-day moving sideways. And the breakout last June.

So, here we are… About a year into the current, strongly rising trend.

Here are three key points:

  • First takeaway… The gold price move predates President Trump. It began in January 2016, during the Obama administration.
  • Second takeaway… Gold has been rising — another way of saying that the dollar has been falling — for nearly five years.
  • Third takeaway… Currently, gold is rising despite coronavirus, although it’s fair to say that the recent U.S. government monetary response to the bug all but guarantees a continued rise.

Why is gold rising in the way it is, and will this carry on into the future?

Gold has been rising under Presidents Obama and Trump, two very dissimilar people with dissimilar approaches to governance, and dissimilar appointees to policymaking positions.

In other words, personalities seem not to matter to gold. Something else is going on…

Odds are that gold will keep on rising under any follow-on administration — yes, even if we see “President Biden” next year.

Here’s another way of looking at things…

Gold was rising in price — and the dollar was falling — even during the allegedly “great economy” in the U.S. (and globally, in many respects) before COVID-19 hit.

It gives pause… If the economy was so “great,” then why was gold running up and the dollar fading?

More recently, gold rose (and the dollar faded) as Washington handed out gobs of cash to counteract the economic impact of coronavirus lockdowns.

That is, the $4 trillion in new government spending and obligations (with more likely to come) had a positive effect on gold.

Point is… Gold has been rising against the dollar for a good while, in good times and bad. It makes you wonder how “good” those good times actually were.

Meanwhile, over the past five years, part of the strength in gold has been demand from central banks and governments. It’s the usual suspects… Russia, China, Iran, Turkey… and more.

Long-term, these countries seek to de-dollarize. That is, to use the dollar as little as possible. And this angle on gold is no secret; heck, you can read about it in the Washington Post and New York Times.

Oddly, however, governments in “Anglo” nations have not been gold accumulators; not yet anyhow.

In other words, buying by Russia, China and all the others, the U.S., the U.K, Canada and Australia haven’t increased state-level gold reserves. Indeed, Canadian Prime Minister Trudeau actually sold off the nation’s gold.

It’s worth noting that the U.S., Canada and Australia are major gold producer nations. Yet at government levels — the level of national treasuries — the countries are not accumulating gold. In fact, much U.S., Canadian and Australian gold is exported.

So places like China get the gold while producing nations are left with holes in the ground, like these…

Former gold mines

Former gold mines now closed. Near Carlin, Nevada.

Governments in the U.S., Canada, U.K and Australia have missed out on accumulating gold. But at least some individuals are buying the metal. Sales of gold bullion are generally up.

Indeed, not long ago I discussed America’s newest “gold rush,” and how wealthy U.S. individuals and companies are storing gold in COMEX warehouses.

At this point, you may be kicking yourself for missing out on the gold rally. Still, you could score gains as gold continues to trend upwards.

In fact, my colleague Jim Rickards has long forecast that gold will move toward $10,000 per ounce or higher over the next four years. There’s quite a bit of upside left, per Jim.

The history of past gold bull markets (1933–40, 1971–80 and 1999–2011) shows that the most powerful gains come toward the end of the bull market, not at the beginning.

So it’s not too late…

There are many ways to buy gold, both online and at local sellers in most cities. But let me mention a group called the Hard Assets Alliance (HAA), which deals in precious metals.

Hard Assets has in-stock supply right now, with among the lowest premiums in the business and the easiest website interface to navigate, bar none.

(Note: Agora Financial owns a share in HAA. We’ll collect a small cut if you open an account and buy. But we wouldn’t have made that deal unless we liked how they treated their customers to begin with.)

Whatever you decide to do — and however you get some gold — it will do you more good, over the long haul, than just watching the value of your dollars fall, infected by that monetary coronavirus.

HAA is set up to buy, sell or hold. HAA can either deliver precious metal to you or store it for a competitive fee. HAA has secure vaulted storage in numerous locales. That way, if you store with HAA, you don’t have to worry about security on your own premises.

As I mentioned up front, we’ve been cooped up for several months because of the virus. It’s been easy to overlook how the dollar is declining, in both a long-term sense as well as just week to week or month to month.

But it’s inescapable that the dollar is sick… My analogy is to coronavirus, but that’s just to illustrate the point.

If you do not own gold, I’m not sure what the delay is… Get rolling! And if you wait too long, you’ll be chasing momentum.

On that note, I rest my case.

That’s all for now… Thank you for subscribing and reading.

Best wishes,

Byron King

Byron King
Managing Editor, Whiskey & Gunpowder
WhiskeyAndGunpowderFeedback@StPaulResearch.com

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Byron King

A Harvard-trained geologist and former aide to the United States Chief of Naval Operations, Byron King is our resident gold and mining expert, and we are proud to have him on board as the managing editor of Whiskey & Gunpowder.

This “old rock hound” uses his expertise and connections in global resource industries to bring...

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