Sure, the U.S. Dollar may be strong as of late versus other currencies, but when measured versus the price of gold, the USD has experienced significant value destruction over the years as a result of the Federal Reserve’s persistent money printing.
The USD has lost 98% of its value versus gold since August 1971 when President Nixon took the U.S. off of the Gold standard. Gold stood at approximately $44/ounce in August 1971 and sits at approximately $1,802 as of August 14th 2022, representing 98% USD value destruction.
- Exponential M1 growth. The Federal Reserve grew the money supply as measured by M1 from $1.5 Trillion in October 2008 to $21 Trillion as of June of this year. With such massive inflation of the money supply (1,300%), it is only natural that the USD would experience significant devaluation versus gold.
- Strongest of the weak. The USD remains strong versus other fiat currencies as all major central banks have followed the same MMT playbook since the great recession resulting in: record debt levels, negative real rates, high price levels and the stagflationary environment we are living in.
- Why hasn’t gold performed better in recent years – particularly given that the Fed has inflated the money supply by 425% from Q1 2020 through today? Our view is that many dollars that would normally pursue gold in times when the money supply is rapidly expanded instead pursued equities and crypto currencies. Further, the banks are not above commodity price manipulation as we saw in the J.P. Morgan spoofing case.
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