Gold’s Rise Is Reflected In The Dollar’s Inflation
In the last week, we have seen gold break record highs in price and are expecting it to pass $2,000. This has generated significant excitement in the market which has drawn strong investment. However, a rise in the price of gold against the dollar has its roots in the actions of the US federal reserve. These factors are setting the stage for significant economic impacts on people around the world that will increase global poverty and mortality.
When two units of value are measured against each other, a rise in one is reflected as a fall in the other. This is essentially what is happening in the market for gold. A fall in the purchasing power of the dollar is at the root of the rise in gold’s price. The current record prices are positive for gold miners whose balance sheets are representative of their gold deposits, as well as individuals with the foresight and resources to invest in the precious metal. Sadly these gains are set against a global financial crisis being caused by the unrestrained printing of US dollars and the associated inflation.
The recent unprecedented printing of the dollar has been justified for supporting the economy due to the global lockdown. The shutdown was enacted specifically because of a fear that people would die from a virus. International bodies like the WHO were influential in convincing most countries to bring commerce to a screeching halt by shuttering businesses and implementing social distancing.
The lockdown has resulted in 90% of the world’s children being forced to halt school attendance. UNESCO has estimated that the economic fallout from the global shutdown will result in 90 to 117 million children slipping into poverty. Including their parents, this represents a quarter of a billion new people below the poverty line. Once a person moves over the poverty line their life expectancy drops drastically. If UNESCO is to be believed, an additional quarter of a billion people will die in poverty because of the economic situation caused by the virus lockdown. Potentially the number of deaths from poverty could outweigh the number of deaths from the virus.
The economic downturn has been the justification for printing vast amounts of fiat dollars which are now flooding into the commercial banking system. It is this tsunami of unbacked dollars which are raising the price of commodities such as gold. Gold itself has not changed in intrinsic value, rather it is the dollar which is losing value. In June of this year, the United States printed more money than it had in the two hundred years since it was founded!
Dan Morehead of Pantera Capital pointed out that “Last month the U.S. budget deficit — $864 billion — was larger than the total debt incurred from 1776 through the end of 1979.” He correctly added that “with that first trillion we defeated British imperialists, bought Alaska and the Louisiana Purchase, defeated fascism, ended the Great Depression, built the Interstate Highway System, and went to the Moon”.
It is true that the economic lockdown has impacted the supply of new gold onto the market and restricted the movement of bullion. However, since Nixon removed the US dollar from the gold standard in 1971, the dollar has not been representative of any intrinsic value. When US dollars are printed they increase the volume of dollars in the economy, reducing the dollar’s purchasing power through inflation. It is fair to say that inflation is a hidden tax on those who save as it erodes the real purchasing value of their savings.
Since the introduction of the federal reserve system in 1913, 96% of the purchasing power of the dollar has been stolen in this manner, although some researches put this figure closer to 100%. The US dollar does not operate independently and acts as the base value for global commodities. It impacts all other currencies so an ailing dollar has global implications for the poorest members of society.
The impacts of the federal reserve on the value of the dollar are only just beginning to become apparent. Against gold and bitcoin the dollar is losing value as investors try to hedge their investments. As we see inflation increase we will see greater poverty. There has never been a more important time to own gold to protect yourself against the devaluation of fiat currencies.
MetalStream is the issuer of the innovative gold-backed MSGLD token. Please visit our website for more information, and contact firstname.lastname@example.org for enquires related to the purchase of tokens.