When you look at the pattern of the 1970s vs today, there is no question that things are going to get pretty hairy but it will all be good for gold.
The Hairy 1970s
December 13 (King World News) – James Turk: While we wait for the Fed’s next interest rate decision, I’d like to draw some comparisons to the 1970s, Eric.
I suppose it is not surprising that in my own mind I keep comparing the surge in the cost of living today to what I experienced by living through the 1970’s inflation. It provides a basis for comparison, and there are similarities.
These include the false hopes when you think that the worst of it has been reached. But the occasional dips in prices were temporary, so don’t read too much into the latest CPI announcement. Throughout the 1970s, inflation just kept getting worse until interest rates were 6% above the inflation rate, finally putting a lid on prices but also sending the economy into a tailspin.
The prospect for runaway inflation was just around the corner when Paul Volcker was appointed Fed chairman. He was intent on stopping inflation to save the dollar, which he did with sky-high interest rates…
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But here’s where the comparison to the 1970s ends. Back then rising interest rates were the solution; today they are the problem.
The reason of course is the magnitude of debts created in the 35 years since Volcker was replaced at the Fed. Since then the US has morphed from the largest creditor nation in the world to its biggest debtor, not to mention today’s mountain of derivatives. They were inconsequential back then.
The country’s monetary problems go back to August 1971 when President Nixon told the world that he was going to “suspend temporarily” the dollar’s link to gold. Since then we’ve been living in a casino. By taking away the reliable and trustworthy standard to measure value in everyday activity, he and an accommodating Fed let loose an array of financial bubbles as well as an ongoing barrage of leveraged derivative speculation against a backdrop of ever growing debt.
Central banks claim they are needed to attain price stability. Because they have been unsuccessful in attaining price stability, financial gurus claim that derivatives are needed to control volatility from price fluctuations. Regardless which group you listen to, the reality is different. They confuse volatility with currency debasement, as is clear from this chart.
This chart – which is prepared on a log scale – shows that price volatility is a fact of life. The volatility is identical regardless of the money or currency used to measure it.
The price of everything fluctuates to some degree because prices are a result of four unpredictable forces. These are the supply and demand of currency used for measuring prices and the supply and demand of the product being measured, which in this case is crude oil.
What this chart clearly illustrates is the loss of purchasing power suffered by national currencies. The price of crude oil in gold is basically the same throughout these seven decades, fluctuating either side of the baseline, but not so for national currencies.
It recently took 100-times more British pounds to buy a barrel of crude oil than it did in 1967 when the British government and an accommodative Bank of England began eroding the purchasing power of that country’s currency. The other national currencies were not debased as badly, but none of them are even close to matching gold’s natural – namely, managed by nature, not by mankind – ability to preserve purchasing power. This result is a fundamental principle of what I call the theory of natural money.
So as we await the Fed’s latest interest rate decision, let’s keep the big picture in mind. The horrific decision to “suspend temporarily” natural money – gold and silver, which are the money of the American Constitution – has created a false economy destructive to the environment because it has been built on overconsumption made possible from excessive debt, which leads to a key point. To end inflation this time, gold and silver are the solution, but there’s one more key point that needs mentioning, Eric.
After months of negotiation with Middle East oil producers, China has just announced that it will use the Chinese yuan to pay for crude oil that it imports from the Gulf states, putting it in direct competition with the dollar and more likely than not, lessening the demand for the dollar.
These oil producers know that inflation in the 1970s was bad enough. Their search for alternatives to the dollar reveals their unwillingness to wait for governments and central banks to return to gold. They no longer want – nor should anyone want – to remain victims of Nixon’s fateful decision.
The Writing Is On The Wall
So the writing is on the wall. Decades of dollar supremacy are ending, the origin of which can be traced back to breaking the dollar’s link to gold in 1971. It is only a matter of time before governments embrace gold and once again accept its rightful and traditional role as money in the center of global commerce, which creates a clear investment opportunity here.
In addition to owning physical gold and silver for liquidity, every diversified investment portfolio should also own shares of precious metal mining companies. It was a successful portfolio strategy in the 1970s. It’s likely to result in another winning track record given today’s inflation and the inevitable return to natural money as the solution.
Also of importance…
Gold Is Flying
Eric King: Paul, gold is flying and you guys have some of the most compelling major gold exploration swings in Nevada. Tell us about near term catalysts.
Looking For A Major Gold Discovery
Paul Sun: Eminent was groomed over the last 2 years in anticipation of the next gold bull market with a key goal of making a major gold discovery in Nevada.
The company has a tight capital structure that was designed to give our shareholders the chance to realize major torque to the upside if we are successful with our exploration. We have a pure gold exploration portfolio driven by 4 major opportunities including our HSRP and Spanish Moon projects that could make history in Nevada as we believe they represent analogues to the early days of the Getchell trend, which has over 40 mm ounces and the 23 mm ounce Round Mountain mine, respectively. Our plan is to drill 4 gold projects, starting some time in Q1 consecutively over the next 12-14 months.
On The Hunt For 10 Million Ounces Of Gold In Nevada
We are currently waiting for a geophysical survey results on our Spanish Moon property, and so far we have the address and nearby grade. However, we are looking for confirmation of a significant structure that could resemble an opportunity to test to see if we have another Round Mountain type of discovery. We are in the early stages of exploration and the risk is certainly there, however the potential prize and reward should be extremely significant in terms of share price if we found a 10 million ounce discovery in Nevada.
A Tonne Of Opportunity
We have two projects that are new concepts based on new technologies. Weepah has seen either previous mining at surface, which is highly under explored and has samples up to 2 ounces of gold that were not followed up on. And our Gilbert South which sits next to Hecla and has up to 2 g/t historically drilled near surface. We have sampled up to an ounce of gold, and there are structures beneath that have not been tested and map from surface down to 2km. Our portfolio offers a ‘tonne’ of opportunity in Nevada, one of the best jurisdictions in the world. Eminent Gold, symbol EMNT in Canada and EMGDF in the US.
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