Two days ago marked the 52nd anniversary of perhaps the most consequential event in modern financial history.
Faced with the pressures of losing more gold from their national reserves, then President Richard Nixon announced that he would temporarily close the exchange window between gold and the US dollar. It became too much after France’s President Charles de Gaulle demanded the return of its gold from safekeeping during the Second World War. Other nations could follow suit.
By halting this exchange window, the US dollar became the world’s de-facto reserve currency. Prior to this, the supply of the US dollar was loosely tied to that of gold and hence the price of gold was relatively stable. After 15 August 1971, the price of gold started to rise and even went parabolic from 1978–80:
Source: Thomson Reuters Refinitiv Datasteam
Today, it’s worth just a little below US$1,900 an ounce — a far cry from US$35 an ounce in 1971.
To be precise though, gold never changed. It was the US dollar that decoupled, and its value fluctuated.
Knowing this fact could set your path to building real wealth and possibly change your life.
I’m going to unpack why this is so. I’ll also reveal what you can do to capitalise on it rather than be a victim of this silent robbery by those who know this secret.
A shocking discovery and a turning point
It was over a decade ago when gold fell sharply in April 2013. Consequentially, I came to the realisation of the financial system we have was an illusion that stole silently from us at every moment.
My primary school friend and I had lunch on the Sunday after gold first tumbled. He explained to me how the notes and coins in our wallet were fiat currencies that don’t store value. He showed me that gold is real money and fiat currencies were fake imposters.
In the ensuing months, I read widely on the topic and realised that not only were we living out an illusion and paying through our noses…there was also a better way to build my wealth than to invest wisely in the stock markets, pursuing macroeconomic trends that gave me mixed results. I needed to knuckle down and focus.
So, I focused on gold, but not bullion bars and coins. I took the bull by its horns, except during what might be the most savage bear market for gold in the last three decades.
I tipped in much of my savings and fortnightly pay into gold stocks from July 2013. They tumbled hard. By late-2014, my portfolio was down by around 75%.
There’s no denying I was in a bad state financially and mentally. Why didn’t I give up?
I developed an intuition into studying the markets and identifying the drivers of value for these mining companies. By a stroke of luck (probably more than just a stroke to be honest!), the gold mining industry received a reprieve when the price of oil tumbled into the second half of 2014.
With that, I doubled down and stuck to my plans.
My fortunes turned in 2015–16 as gold recovered and gold stocks staged a stunning recovery.
I cashed out some of my profits and bought my first silver bar and gold coin in mid-2015. And that was just the beginning.
So why gold and silver bullion and not bricks and mortar?
Let’s explore this too.
The silent robbery from the ordinary man and woman
Historically, gold was a stable proxy for prices. In previous centuries, an ounce of gold would buy a man his toga or business wear. In the 1930s, it’d buy a man a suit and even dinner for his family.
An average worker would be able to support their family with one ounce of gold a week.
How much is gold worth now? AU$2,900 an ounce. That’s around $150,000 a year if you had an ounce per week, give or take.
Let me show you how the average weekly income of a worker in Sydney fared in gold ounces since 1994:
Source: Internal Analysis
This figure might hold to key to why the average Australian household needs to have more than one income. And it should also explain why the average mortgage and outstanding credit card debts have increased substantially.
Basically, we’ve all become poorer. The golden years were at the turn of the millennium when the average worker in Sydney earned around two ounces of gold a week. This is the equivalent of $300,000 each year. How many people are getting paid that amount?
And don’t take my word for it. In January 2022, Nine News ran a news piece ‘What it takes to feel rich: How much Aussies need to earn to “feel wealthy”’.
Guess how much they said the amount is?
In gold terms, Australians are falling behind. I believe that this isn’t just an Australian problem. It’s worldwide.
The fact is that the subprime crisis in 2007–09 — which led to central banks around the world cutting interest rates to near zero for several years — began the silent robbery of the ordinary household. It was a silent redistribution of wealth from the workers to the asset speculators. The Wuhan virus outbreak completed this when big businesses were allowed to stay open while many small businesses were forced to lock down.
While interest rates stayed at near zero, there was a flood of fiat currencies flowing into the economy through massive government spending and corporate borrowing. The ordinary households received a trickle from this largesse, insufficient for them to keep up.
But those who knew the secret of gold weren’t left behind.
A major rally for gold — a matter of ‘when’
Gold has almost tripled since the subprime crisis. This is despite sustaining a king hit in 2013 when US Federal Reserve Chair Ben Bernanke played with short and long-term bonds to manipulate the interest rates. You can see it in the figure below:
Source: Thomson Reuters Refinitiv Datasteam
It seems to be setting up for another major run. That could happen real soon.
Recent developments geopolitically and financially could spark that move. It could come as early as next week when the BRICS nations hold their summit.
Or it could come from a US constitutional or economic crisis.
Or from the massive stimulus that the Chinese Government may need to unleash to prevent a severe economic decline.
It’s natural for people to say that they’ll climb on board a rally after it’s gained momentum. They hate catching a falling knife. Even a few months of inactivity is too long for them as they want to chase what’s hot and end up overstaying their welcome when the momentum breaks down.
If you’re looking for a place to park your wealth now, get into gold NOW.
I’ve recently revamped my precious metals newsletter service, The Australian Gold Report, to become a one-stop shop for all things gold (and silver too!). There you’ll find out how to allocate your wealth between bullion, gold and silver ETFs and mid to large-cap gold stocks.
I use a unique analytical approach and valuation techniques you won’t find anywhere else. I developed them over the past decade in my journey. It’s tried and tested.
So why not head over here to find out more? Consider signing up now as we’ve got a special offer for you.
Editor, The Daily Reckoning Australia