by Dave Kranzler, Investment Research Dynamics:

“Gold, unlike all other commodities, is a currency…and the major thrust in the demand for gold is not for jewelry. It’s not for anything other than an escape from what is perceived to be a fiat money system, paper money, that seems to be deteriorating.” … Alan Greenspan, ex-US Federal Reserve Chairman, August 23, 2011

The chart on the right shows the purchasing power of the dollar from when the Fed was founded to present. Pretty much self-explanatory but it’s why we buy and own physical gold. For now the price of gold has found resistance – likely official – in the high $1700’s.  But that will soon change as gold soars in response to what appears to be global Central Banks’ – led by the Federal Reserve – willingness to print unlimited quantities of paper currency in order to keep price (note: not “value”) of  financial assets elevated.

The overwhelming imperative to keep control of markets is a recipe for hyperinflation and will ultimately fail. The Fed would have us believe that the slump in business activity is only due to the coronavirus lockdown and that shortly after it ends normality will return. It will hope that we have forgotten that fully five months before the virus hit, it was forced to inject liquidity into the repo market at the rate of tens of billions every day.

The Fed’s monetary policy replicates John Law’s attempt to keep his bubble going in 1720 France. Law failed to maintain the price of just one asset, the Company of the Indies, his Mississippi venture, by printing livres to buy the shares. Within seven months the currency had collapsed and priced in worthless currency, the shares had fallen from 12,000 livres to just one or two thousand.

The principal upon which the Fed and the other major central banks are embarked is the same in every respect, but with a far larger task. The project will fail for the same reason: no one can fool all of the people all of the time. It is increasingly obvious that both the currency and financial asset values will collapse John Law-style, probably by the end of this calendar year, if precedents are any guide.

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