Gold has different meaning to different people.  It vibrates at a distinct frequency, depending on who’s doing the digging, in what cave in what country, and who’s holding how many guns to whose head while they’re digging.

Gold can be a thief’s escape to Europe and Asia from big city prosecution in America.  It can be a solid asset for any serious investor’s portfolio.  Or the precious metal could be a gift from God with the idea being to gold back our currency and bring new life to our families and our otherwise smothering financial system.  It could be the death of fiat currency and central banking as we know it.

This is what gold is not.  Gold is not a function of the U.S. dollar nor is gold an inflation hedge, writes Mike “Mish” Shedlock at moneymaven.io.

Swings in the U.S. dollar have no long-term impact in the price of gold, Shedlock writes in his article entitled, Gold Is Not a Function of the U.S. Dollar Nor is Gold an Inflation Hedge

Shedlock stresses three major points in history that illustrate this point:  December 2004, which saw the U.S. Dollar Index 108, Gold $435;  April 2009: US Dollar Index 108, Gold $883;  and November 2014: US Dollar Index 108, Gold $1182.  The comparative numbers are obvious.  The precious metal wins out over the U.S. dollar hands down.

Mike “Mish” Shedlock is a registered investment advisor who writes a blog called “MishTalk”.  Shedlock writes several articles a day and he likes to write about the global economy.  His topics include interest rates, central bank policy, gold and precious metals, jobs, and economic reports, all from what he calls “an Austrian Economic perspective.”

His rule of economic law here is that over the span of many years the U.S. dollar does not affect the price of gold.  In other words, gold is not a function of the U.S. dollar in any meaningful way.  “While gold generally moves opposite the dollar in day-to-day fluctuations, long term impacts are nonexistent,” Shedlock says.

GOLD IS NOT AN INFLATION HEDGE

Gold is also not a hedge against inflation, with history  to prove it.  “Gold fell from $850 to $250 from 1980 to 2000 with inflation every step of the way,” Shedlock writes.

So what happened to our economy?

“People had faith in the great ‘Maestro‘, Alan Greenspan,” Shedlock says about the former chairman of the Federal Reserve Bank.  They invested in the mighty dollar to pump up inflation and basically forgot about the precious metal.

Which is hard to believe, because inflation is understated, right?

“Indeed it is,” Shedlock says.  “Central banks are clueless regarding how to measure inflation. Bubbles are a direct consequence of inflation.”

This has very strong implications if we do our math.  Because inflation is higher than reported, now standing at about 10% according to John Williams at Shadowstats.com, which means gold is even less of an inflation hedge.

But as to every rule, there are key exceptions.  “There is one exception to the rule gold is not an inflation hedge,” says Shedlock. 

The exception is extremely high rates of inflation, especially hyperinflation.  This is when it’s good to stock up on everything the family needs to care for itself.  “In case of hyperinflation, nearly any storable physical asset is a hedge: cheese, cigarettes, gasoline, etc.,” he says

To repeat:  there is nothing unique about gold as an inflation hedge in case of hyperinflation.  Toothpaste, medicines, or medical cannabis could become as good as gold.

THREE THINGS GOLD ISN’T

Again, according to “Mish”Shedlock, there are three things gold is not:

  1. A function of the US dollar in any meaningful way
  2. A measure of inflation
  3. A good hedge against inflation, except extreme inflation and hyperinflation where any storable asset is a hedge.

So then what is gold good for, and how can it help my family?

The investment adviser suggests using gold as a kind of ballot to be cast against or for the financial mechanism that is central banking.  “Gold is a measure of faith in central banks,” Shedlock says.  “In addition to being money for thousands of years, the price of gold is primarily a measure of faith in central banks.”

If you believe central banks have everything under control, and hold our “the people’s” best interests at heart, then don’t bother buying gold.  But if you know history, and you’ve done your research, then you know banks aren’t what they make themselves out to be.  Which makes placing one’s family trust in central banks to inflate our bank accounts a rather impossible idea.

SO, SHOULD I HAVE FAITH IN CENTRAL BANKS, OR NOT?

It’s not easing learning everything you can about the fiat currency, fractional reserve, ponzi scheme, derivative structured banking system, and then believing in those who run or manage our best financial interests.  It’s not so much the concept of central banks being this autonomous vehicle running amuck that’s the turn off to most who are in the know.  Our ire focuses on those men and women who run the central banks, and those who control the strings of the central bankers, like invisible puppeteers from the shadows.

So why should I place my faith in central banks?

“Mish” Shedlock can’t think of any good reason, instead listing five grounds not to.  They are:

  1. “Zero has no meaning” says Greenspan:  I disagree, So does gold
  2. 30-Year Long Bond Yield Crashes Through 2% Mark to Record Low 1.98%
  3. More Currency Wars:  Swiss Central Bank Poised to Cut Interest Rate to -1.0%
  4. Inverted Negative Yields in Germany and Negative Rate Mortgages
  5. Fed Trapped in a Rate-Cutting Box: It’s the Debt Stupid

There are many reasons to hedge your bet this financial season.  If you believe monetary madness, negative interest rates, and negative rate mortgages prove central banks do not have things under control, then you know what to do.

“Buy gold,” says “Mish” Shedlock. 

Buy silver, says I.

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