FX Street: Can Gold and Silver Prices Double or Triple as Rising Inflation Destroys Savers' Wealth?

Article by Peter Ginelli in FX Street

Back in 1933 when an ounce of gold was trading at only $20 per ounce, the median income for the average American household was about $1500 a year. So as you can well imagine, $20 back then could go a very long way. You could essentially go to the most expensive store in Beverly Hills and buy the most expensive suit for $20 and upon discovering this careless spending, your family and friends would think you are insane to have spent $20 on a single suit. 

Now imagine you had two $20 bills in 1933 and you put one of them under your mattress and turn the other one to an ounce of gold. Fast forward to today, 88 years later. The $20 under your mattress can buy you a couple of burgers, some fries and if you are lucky, you might get some change back. However the ounce of gold you had purchased, if you sold it at today’s spot price of $1730, it would enable you to go back to that same store in Beverly Hills, buy that same suit and never hear the end of it from your family and friends on the insanity of having spent that much money on a single suit. 

The purpose of that example, was to demonstrate how much the value of your money has dropped over the years and how gold could have prevented that loss in your purchasing power almost a century later.

“If you purchased 100 shares of a company’s stocks, and year after year, you saw the value of those shares dropped, how long would you hold on to it before you finally throw in the towel and dump it?” The lateWall Street legend Richard Russell once asked in reference to the value of US  dollar. “A year, 5 years? How about 10 or 20 years? Even the most patient and optimistic investors would probably give up by the 2nd or 3rd year, cut their losses, dump the stocks and move on to something more stable. So ask yourself this question, if US Dollar was a stock, would you buy it?” he concluded. 

Russell asked this provocative question because we buy stocks in the hopes that they gain, or at the very least, maintain their value. We would never purchase a stock with a terrible history of decline in value as has been the case with the US Dollar. And yet, we wake up every morning and eagerly show up at our jobs in the hopes that we can get more of those ever-so declining stocks called the US Dollar. If it wasn't so tragic, it would actually be funny. 

The simple truth is that US Dollar has been in steady decline since early 1900. According to the former Federal Reserve Chairman Alan Greenspan, between 1930 and today, US Dollar has lost over 98% of its value, or in a more practical sense, its buying power. That is truly astronomical if you really think about it. 

There is a term for currency devaluation. It's called inflation. Most people think of inflation as ‘the price of goods and services going higher,’ but actually that is incorrect. The “value” of a dozen eggs, a pound of beef, a loaf of bread or an ounce of gold has never changed. It took no more effort for a chicken farmer in Iowa in 1933 to get a dozen eggs which sold at $0.18 cents back then than today when that farmer’s grandson sells that same dozen of eggs for $3.29. And yet, that farmer wants 1800% more money to sell that same dozen of eggs than his grandfather did back in 1933, because the value of that money has declined and so he has to make up that loss by demanding many more dollars to offset the loss. 

So what will your money be worth in the next 10 years? Based on historical facts and statistics, a lot less than it does today. 

Just in the past 12 months, from March 2020 through April 2021, the value of dollar on the index has dropped from 98.7 to 93.1. That's an astonishing 9.7%, in just a single year. The question is .....

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