Lux Lucet

What Does a Rising Gold Price Mean?

When we speak the gold price going up, what we’re really saying is that, measured in gold, the value of the dollar is going down.  This is a key point, and one that needs to be emphasized.  Put another way, the dollars you carry around in your wallet, the dollars you have in your checking and savings account, the dollars you receive in your paycheck, have all lost 36% against gold in just the past twelve months. 

Measured in silver, the loss of the dollar’s purchasing power is even worse.  Back on June 1, 2020, you could get one ounce of silver for $17.83.  Now?  Well, you’d have to pay $28.41 for that same ounce. This means that your dollars have lost 59% of their value when measured in silver in just over two months!

In summary, rising gold and silver prices mean the value of your dollars is going down.

Other Ways to Measure the Value of the Dollar

Now there are a lot of ways to measure the value of the dollar.  There is, for example, the DXY index.  Sometimes called the “Dixie”, this index measures the value of the dollar against a basket of other major currencies. As measures against these other currencies, the dollar has dropped about 7% just since May 25. 

The Consumer Price Index (CPI) is another way of measuring the value of the dollar.  This index purports to tell us the rate of inflation.  There are two problems with the CPI.  First, it deliberately understates inflation.  Second, what the CPI measures isn’t inflation at all, but rising prices, which are the the result of inflation.  More on these problems below.  With that said, according to the most recent data from the Bureau of Labor Statistics (BLS), inflation is running at a rate of 0.6% annually.  This means that, according to the BLS, your dollars are losing value at the rate of 0.6% every year.  This is quite a bit different from the what we get when we look at the decline of the dollar when measured in gold and silver. 

One important thing to keep in mind about the CPI is that it is a government statistic.  As such, one may reasonably assume that it is modified in ways that are advantageous to the government.  This is, in fact, the case.  When it comes to the CPI, the index has been modified over the years to understate the what is commonly called inflation, by which people mean rising prices. 

One way of checking inflation as measured by the CPI is to compare it to John William’s Shadow Statistics calculations.  John Williams is an independent economist who purports to calculate inflation the old-fashioned way.  On the Alternate Inflation Charts page of the Shadow Stats website, there are two charts.  The top chart has two main lines, one in red showing the inflation rate as measured by the CPI, and one in blue which represents inflation as calculated by John Williams using governments own official measure of inflation as calculated prior to 1990.  Where the CPI reports less than 1% inflation, John Williams shows inflation running at almost 4%. 

The bottom chart on this page shows two line.  One in red, which is the office BLS CPI, and one in blue, which is what John Williams has calculated inflation to be if one were to use the government’s own method which was used prior to 1980.  Using the 1980 method, inflation is running at about 7.5%, much higher than the 0.6% the CPI is reporting. 

Another way of measuring rising prices is the Chapwood Index, created by Ed Butowsky.  One the About page of the Chapwood Index website, he explains his reason for creating the index:

I am tired of observing people commit financial suicide… I firmly believe the government gravely underestimates the national rate of inflation—a number also plagued with bias and statistical manipulation. It is universally assumed that the government’s rate of inflation is accurate. It simply isn’t… This blind acceptance is one of the main reasons people are reliant on the government entitlement programs that are bankrupting our country. Over 50% of Americans are dependent on the government entitlement programs to get by. This is horrible… Americans that rely on this statistic are falling behind [financially] more and more every year. Individual purchasing power is sinking in quicksand, and people are unable to maintain their current lifestyle. Salaries and portfolios must increase more than the numbers reported by the CPI—more than the numbers by the Chapwood Index. That is how you keep up… It is about time someone does something about this tragedy and stands up for the people. That is why I put this together.

The Chapwood Index uses a simple method for calculating rising prices.  They use a list of the top 500 items people use most frequently and compare the prices of the exact same item every quarter.  Further, the Chapwood Index takes measurements and keeps records for individual cities, since prices do not rise the same in all parts of the country.  If you look at the Index’s main page, you’ll see inflation listed by metropolitan area.   Of the 50 metro areas included in the survey, Oakland, CA has the highest 5-year average inflation, coming in at 13.1%.  The lowest average was Raleigh, NC, which is listed as 6.8%. 

In short, inflation (and by “inflation” we’re talking about rising prices) as measured both by Shadow Stats and by the Chapwood Index, is much higher than is reported by the government’s CPI. 

What is Inflation? 

Inflation, you may be surprised to learn, is not rising prices.  Inflation, properly defined, refers to an increase in the increase in the supply of money over and above an increase in the output of the economy.  Dave Kranzler, one of the most lucid financial commentators I’ve come across, defines inflation as, “The rate of growth of the money supply over and above the rate of growth in wealth output.” 

My Webster’s Seventh New Collegiate Dictionary (I bought this used dictionary, published in 1965, because it pre-dates the corruptions of the English language introduced in the years since) defines inflation as, “an increase in the volume of money and credit relative to available goods resulting in a substantial and continuing rise in the general price level.” 

The key takeaway here is that inflation is not rising prices.  Inflation is when the amount of money increases faster than the goods available for sale.  Rising prices are THE RESULUT of inflation, not inflation themselves. 

To put it even more bluntly, inflation is money printing, which causes prices to go up.

Unless you’ve studied economics for yourself, this definition of inflation probably is a surprise.  I mean, whenever the talking heads on CNBC or other business outlets talk about inflation, they always mean rising prices.  So why the shift in the definition of inflation? 

The most likely reason behind the change is to take people’s focus off the Federal Reserve (hereafter, the Fed), which is the source of the money printing, and shift it to the phenomenon of rising prices, which then can be blamed on any number of things, all totally unrelated to Fed’s immoral money printing.  Defining inflation as rising prices allows the Fed to operate in the shadows. 

Take this recent headline from Reuters for example, “Gasoline boosts U.S. inflation; escalating COVID-19 cases seen suppressing demand.” The article opens with the following sentence, “U.S. consumer prices rebounded by the most in nearly eight years in June, but a resurgence in new COVID-19 cases after the reopening of businesses suggests a moderation in demand that could keep inflation muted and allow the Federal Reserve to keep injecting money into the ailing economy.”

Very clearly, the article implies that rising prices are inflation.  Worth noting here is that the Fed is mentioned as, “injecting money into the ailing economy,” which is inflation, but the article does not identify it as such.  In fact, the inflation done by the Fed is cast in a good light, being described as an “injection” of money into an ailing economy.  It’s almost as if the Fed is a doctor working to cure a sick patient, when, in fact, the Fed is a quack whose cure is worse than the disease.  For it is the Fed’s “injection” of money (properly, what the Fed is injecting is not money, which is defined by the U.S. Constitution as gold and silver, but currency) that lies at the root of rising prices. 

To sum up, inflation occurs when the money supply grows faster than the economy as a whole.  Inflation is the cause of rising prices, no rising prices themselves.  Further, it is the Fed that controls the rate at which the money supply grows.  This means that inflation, and the rising prices that come as a result, are the fault of the Fed.  COIVD-19 does not cause inflation, central bankers do.  

What Does $2,000 Gold Mean for You?

“The dollar is on fire, and the fire may have begun with the dollar, but it’s going to spread to the financial markets and the entire economy and people just don’t get this.”

• Peter Schiff

Hopefully, this discussion of inflation, its definition and its cause has not been overly theoretical.  Sometimes people are put off by “ivory tower” sounding discussions, but, as John Robbins has noted, “the ivory tower is the control tower of society.” That is to say, it is ideas in men’s minds that control their actions. 

In this closing section, rather than discussing theory, my goal is to make clear what $2,000 gold means for you.  In the first place it means, as noted above, the dollars you hold in your wallet and in your bank account, are dropping in value every day.  When gold goes up in dollar price, that’s the same thing as saying your dollars are going down in value.

One implication of this is that you need to hold your long-term savings in something other than dollars.  A recent headline in ZeroHedge made this point dramatically.  It read, “US Dollar Devalues By 99% Vs God in 100 Years As Gold Price Crosses $2,067.”   

When America was still on the gold standard in 1920, you could walk into a bank with $20.67 cents in paper dollars and exchange them for a $20 St. Gaudens one-ounce gold piece.  Today, if you were to buy a one-ounce gold coin, it would cost you over $2,000 to do so.  That, as the headline correctly noted, means the U.S. dollar has lost 99% of its purchasing power in 100 years. 

From a practical standpoint, imagine if your great grandparents had stuffed $20.67 cents in paper dollars under a mattress in 1920 compared to if they had stuffed a single one-ounce gold coin under the same mattress.  The paper money would have lost 99% of its purchasing power by now.  Maybe you could use it to buy an extra-large pizza for dinner.  But the gold coin?  You could sell it for over $2,000 and buy all the extra-large pizzas you wanted for years to come.

A second implication of $2,000 gold is that the U.S. dollar will continue losing value until it’s worthless.  As Egon von Greyerz has noted, “Very few people understand that it is not the price of goods and services that are going up but that it is the value of the money in their pocket that is constantly declining.” 

So when will the U.S. dollar become worthless?  Good question.  This author does not claim to have the answer.  When he can tell you though, is that some of the very best financial people he reads think that a dollar crisis could be in the near future, perhaps before the end of this year.  Alasdair Macleod has written, “The circumstantial evidence that the dollar will collapse before the year-end is mounting.”   

Peter Schiff has made similar comments several times recently.  In a recent podcast he noted, “I think that’s what’s going to happen soon to people who are in the dollar. As soon as they look down and realize where they’re standing, the dollar is going to drop like a stone and that’s when the price of gold is going to skyrocket. And so, you’d better be on that rocketship before that ride begins.”

A third implication of $2,00 gold is that you need to keep your long-term savings in physical precious metals – gold and silver – and hold them outside the banking system.  The entire financial system is on fire, including the U.S. dollar.  The rising prices of gold and silver are screaming this as loudly as they can.  Are you listening?  If you want to survive the coming economic train wreck, you must get your savings out of the financial system and into physical gold and silver held either directly by you or with a trusted custodian. 

Unlike fiat Federal Reserve dollars, which can be created in the trillions at the click of a mouse, gold and silver are limited in supply.  This means that dishonest central bankers and politicians cannot destroy their value by creating more of them out of thin air.  Gold and silver put the power in your hands and take it away from the con artists who run our financial system.  This gets to the heart of why bankers, government officials and their servants in the financial media all hate, fear and talk down gold and silver.  Fiat currency means power to the bankers and politicians.  Gold and silver are power to the people. 

So how much gold and silver should you own?  That’s the wrong question to ask.  Most people, probably 99% of them, have never systematically purchased gold and silver in their lives.  If that’s you, and most likely it is, then you need to get started. 

At the top of this post you’ll find a quotation from Proverbs 22:3, “A prudent man foresees evil and hides himself, but the simple pass on and are punished.”  To be blunt, our financial system is melting down right in from of our faces. You must act now to save your finances and the finances of your family.  Don’t be like the foolish man who ignores the warning signs and is punished.  Follow the example of the prudent man, who not only sees trouble coming but takes action to hide himself from the evil. 

The primary purpose of this post is not to create fear, although it may have that effect, and that’s not necessarily bad.  Fear is a great motivator.  But more than create fear, it is my hope that this post will prompt you to take action.  Is Alasdair Macleod right that the dollar will collapse by the end of the year?  Maybe.  Maybe not.  But the important takeaway is not whether we’re facing a dollar collapse this year or whether it will take a year or two longer.  The bottom line is that the current financial system is on the way out.  Debts are exploding and central bank money printing is going parabolic.  This is unsustainable.  But the politicians and central bankers won’t tell you this. 

What you need is a bridge to get your capital from the current system to the next system.  Gold and silver have been money for thousands of years.  One can see this from the Old Testament.  Gold is mentioned in Genesis 2.  Abraham weighed out 400 shekels of silver to buy the field at Machpelah where he buried Sarah.  Based on this track record, gold and silver will have value in whatever monetary system replaces our current one, the dollars in your wallet will not.     

We’re facing scary and difficult times.  But God is gracious to his people.  Not only has given us his Word which enables us to see clearly that our financial system is in serious trouble – our entire financial system is based on debt issued by central banks; Proverbs 22:7 tells us that the borrower is the servant to the lender; the necessary implication of this is that the nations of the world are servants to the central banks and becoming more so all the time as debts are exploding – but also has provided a means of escaping the worst of the coming troubles by showing us what sound money is and encouraging us to take prudent action.     

May the Lord open the eyes of his people to understand the times and to take prudent action to hide themselves while time remains. 

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