by Craig Hemke, Sprott Money:
Rising Gold Prices Amid Economic Uncertainty
It’s going to be a busy week for gold and silver prices as the U.S. holds its presidential election. Will Trump win? Will Harris win? No one can say for certain, but one thing we do know: The price of gold will rise over the next four years regardless of who becomes the next president.
And why do we know this for certain? Because neither candidate has put forth a proposal to manage the runaway fiscal debt and deficit of the United States. As such, the only plan is to continue on the same course. Borrow, spend, and hope that the system can continue indefinitely.
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The problem is that the current system can’t and won’t continue indefinitely. Oh sure, we’ve made it this far and maybe we can make it a few trillion dollars more. However, at some point the accumulated weight of the debt, which is growing and compounding at nearly $2 TRILLION per year already, will finally drag the U.S. dollar into collapse. Not collapse versus other fiat currencies, mind you, as they are collapsing at a similar pace. The collapse, instead, is in purchasing power.
Impact of Inflation on Gold Investments
Think of it this way, in basic “Econ 101” terms: For any good, dollars included, an increase of supply that is coupled with a decrease in demand will shift the price equilibrium lower. You’ve likely seen graphs like the one below before. Your instructors or teachers usually described the good in question as a “widget” or something ordinary. As this relates to today, the “good” in question is dollars.
Price/Unit
Again, an ever-increasing debt and deficit can only be managed by an ever-increasing supply of dollars. As the chart above shows, as supply increases, price falls. If the demand curve shifts lower too, the impact on price is even greater. This is true for all goods, dollars included.
At present, neither political party has a plan to slow the growth of the debt, deficit, or dollar supply. Perhaps the lack of plan is an admission that the problem is not solvable? Check the charts below. Does this look solvable to you?
Long-Term Value of Gold Versus Fiat Currency
Turning back to the declining price and value of the U.S. dollar, let’s put this in terms everyone can understand. At TF Metals Report, we’ve planned for “The End of The Great Keynesian Experiment” since 2010. That end began when U.S. President Nixon “suspended” the convertibility of dollars to gold in 1971. Back then, it was possible to cobble together about $14,000 and buy yourself a 400-ounce gold bar. You know the kind I’m talking about. They look like this:
