The CPI Metric That’s Lower Today Than It Was in 1800
The GoldSilver Team
FEB 23, 2024
Nowadays most people think prices only go up. After all, that’s all we’ve known for years.
In a revealing analysis, GoldSilver's very own Alan Hibbard latest research challenges the conventional wisdom on inflation. When you examine the historical data on the Consumer Price Index (CPI) measured in gold, the story is quite different.
Plus, we debunk a few popular myths on one of the most secretive and secure places on the planet. But first, let’s catch up on the news.
The Road to $3,000 Gold
According to analysts at Citi, gold prices could dramatically surge to $3,000 per ounce in the next 12 to 18 months, driven by central bank purchases, stagflation, and looming global recession concerns. This forecast suggests a nearly 50% increase from current levels.
January Sees U.S. Wholesale Prices Increase
According to the Labor Department, the producer price index, which measures inflation at the wholesale level before it impacts consumers, increased by 0.3% from December to January, reversing a slight decline from the previous month. Year-over-year, this index saw a moderate rise of 0.9% in January.
Illegal Open-Pit Gold Mine in Venezuela Collapses
A tragic incident in central Venezuela has claimed the lives of at least 23 individuals after a collapse at Bulla Loca, an illegally operated open-pit gold mine. The accident occurred while numerous miners were working, further highlighting the dangers of unauthorized mining activities.
A Monumental Shift in Gold Mining
Triggered by the 1848 discovery at Sutter's Mill, the California Gold Rush spurred a massive influx, with around 300,000 people flocking to California. This event dramatically accelerated gold mining across the world. Since the discovery, over 90% of today's global gold supply has been mined, dramatically reshaping the precious metals industry.
A New Debt Jubilee? Biden Forgives More Student Loans
The Biden administration announced that more than 150,000 borrowers will receive $1.2 billion in student loan forgiveness. This move aims to offer relief to Americans who have been persistently repaying their student debts for at least a decade. While this decision marks a significant step towards financial freedom for many, it also raises questions about the long-term effects on the economy and the precedent it sets for future educational financing.
Around half of all gold mined in 2024 is projected to be used for what purpose?
A. Electronics
B. Jewelry
C. Coins/Bars
D. Solar Panels
Scroll to the bottom of this email for the answer...
Fort Knox: Myths, Facts, and the Mystery of America's Gold
Did You Know?
Fort Knox is not just the setting for a classic James Bond movie; it's a real place with a vault that holds approximately half of the United States' gold reserves. It’s one of the most secure and secret places in America and few people have ever been inside. Let's demystify some of the legends and share fascinating truths about this notorious federal depository.
Popular Myths Debunked
Empty Vaults: One of the most enduring myths is that the gold in Fort Knox isn’t really there at all. Apparently, some say the vaults are empty, replaced with tungsten painted gold or that the gold was secretly sold off. Despite conspiracy theories, audits and rare public visits have confirmed the gold's presence, with Treasury Secretary Steve Mnuchin affirming, "Glad gold is safe!" during a 2017 visit.
Impenetrable Fortification: Another myth involves the depository's defense, rumored to include land mines and a satellite defense system capable of identifying extraterrestrial threats. While its actual security measures are less out of a sci-fi novel, they are nonetheless formidable, including a blast-proof main vault door, extensive surveillance, and a highly trained Mint Police force.
But The Truth is Even More Fascinating
Fort Knox doesn't just safeguard America's gold – it has historically protected invaluable documents like the Magna Carta, U.S. Constitution, and Declaration of Independence during perilous times, such as World War II.
The vault's design is an architectural wonder, equipped with a 22-ton door capable of withstanding a direct hit from an atomic bomb. Franklin Roosevelt's visit in 1943 underscores its importance, being the only U.S. president to inspect the vault, reinforcing the site's significance in American history.
There’s also a massive disparity between the "book value" of Fort Knox's gold and it’s actual value today. You see, the gold in Fort Knox was initially valued at $6.22 billion in 1973. But today that gold boasts a market value estimated at $273.7 billion, far exceeding its price on the books.
The Strategy Behind Stacking Gold
So why does the United States' keep so much gold on hand?
A couple reasons. The first reason is that gold was originally constitutional money. For hundreds of years, every single U.S. dollar was backed by real gold. They also keep it because it could be used to back the currency in the future, when the public inevitably loses faith in the Dollar.
Overall, it’s great for national security and economic stability. Gold, with its intrinsic value and limited supply, offers a form of financial insurance against global economic crises. The historical decision to amass and protect this treasure is further evidence of a long-term vision for safeguarding the nation's wealth and ensuring a measure of economic sovereignty in an uncertain world.
The world’s most powerful countries and central banks are stacking gold – are you?
A Chart That Challenges the CPI Story
Most people think prices just always go up. But a chart put together by GoldSilver’s own analyst, Alan Hibbard, shows that that’s not always the case.
Here, the CPI measured in dollars is exactly what you’re used to; it’s the price level that Americans have actually been paying for food, transportation, housing, and so on for the last 220 years. The CPI measured in gold is the hypothetical price you would pay if prices were quoted in ounces of gold.
As you can see in the chart, for the majority of the 19th century, prices actually declined. The two notable exceptions were the War of 1812 and the Civil War, when prices temporarily rose.
Why did prices decline?
Because people and businesses could produce stuff – like coffee, bread, lumber, and houses – faster than the government could produce dollars. (Dollars, of course, were backed by gold, and that’s why it was hard for the government to produce them, and it’s the reason that the CPI measured in dollars and the CPI measured in gold were nearly identical for much of U.S. history.)
So when did this all change?
It was only in 1914, when the Federal Reserve began its operations, that inflation started climbing. It was at this point that dollars could be created faster than stuff.
This caused prices to rise dramatically and permanently.
In 1971, when we officially abandoned the gold standard, the CPI took off like a rocket.
Meanwhile, the CPI measured in gold is lower today than it was in 1800. If we had continued to honor the gold standard – and not created a central bank that could print currency without limit – we would have enjoyed the continued prosperity that comes from lower consumer prices, and the country and its people would likely have continued their tradition of amassing savings instead of debt.
The good news is that you can put yourself and your family on a gold standard, even if your country chooses not to use one. Simply convert your abundant currency into scarce money and watch your prosperity improve – gradually and effortlessly – over time.
If you’re intrigued by Alan’s research and are interested in diving deeper into the nuances of inflation, gold’s economic role, and more, we invite you to explore more on the GoldSilver YouTube channel.
That’s it for this week's edition of GoldSilver Nuggets. We'll be back with more news and updates next week!
Best,
Brandon S.
GoldSilver
Around half of all gold mined in 2024 is projected to be used for what purpose?
A. Electronics
B. Jewelry
C. Coins/Bars
D. Solar Panels
Answer – B. Jewelry
Today, nearly half of all newly mined gold, along with a significant portion of recycled gold, is dedicated to jewelry production.
Gold's unique properties and its discovery in a natural, nearly pure form made it one of the first metals to be used by humans for jewelry. Its unmatched luster, captivating yellow hue, resistance to tarnish, and malleability allows it to be shaped into various forms easily. These characteristics, combined with gold's deep-rooted tradition as the material of choice for significant and ceremonial objects, make it the ideal metal for crafting jewelry.