Revisiting “Safe” Positions

September 1, 2020

My Dear Reader,

In a Forbes article from August 4th of 2020, Mary Anne Aden and Pamela Aden, who are co-editors of The Aden Forecast gave a detailed history of the rise of precious metals, and in their article, there are a couple of key points that I believe that we should understand,

“Going back a few decades, gold started its current bull market in 1971. That’s when the U.S. dollar went off the gold standard, and gold and the dollar began trading in the free market. Prior to this, the gold price was fixed for several decades. But suddenly gold was set free, by breaking the Bretton Woods agreement and it began to soar. It started out gradually but then the move gained momentum and in the following 10 years the gold price skyrocketed 2,329%, from $35 an ounce to $850. It then declined for about 20 years, until reaching a major low in 2001. This coincided with the end of the stock market’s tech boom and bust. Interestingly, this also coincided with the early stages of Fed intervention. That is, Fed Chairman Greenspan at the time worked behind the scenes to prop up the stock market. And as Tom Dyson summed up, “that’s when the seeds of massive money printing were sown.” This became openly obvious after the 2007-08 financial crisis. This crisis was so serious, it literally brought the U.S. economy to the brink, which caused government officials to make hard decisions, and fast.”

We have been over the immense cost that printing money and government debt holds for you and your family, but the two most important theories around metals and the conclusions that we can draw from them is the reason why I felt it was necessary to bring this piece up.  

To start, we can correlate the sudden uptick in Gold price with the removal of the dollar from the gold standard. This likely caused a number of speculators to jump on the uncertainty of the times, remember, the US was just pulling out of Vietnam and the turbulent end to the 1960s had many people worried about the future of the nation.  This mindset took a number of years to clear after it had set in and we can correlate the decline of Gold to the US renaissance of the 1980s and 1990s. 

The mindset of the financial industry was just starting to transition to the current market speculation that dominates much of the market today, from the older dividend models.  When uncertainty struck again in 2008 and 2009, gold bounced back and has continued to climb as safer positions began to falter under the weight of government spending and printing.

This begs the question of whether or not gold and other metals will see another decline.  With negative bond yields and an economy that could take years to fully heal and become robust again, one has to imagine that gold or other metals will become a larger part of a diversified position.

To Your Creation and Potential,

Kevin Prendiville