by: Justin O’Connell
Over the last two hundred years, commodity prices have suggested a predictable fifty to sixty year pattern in their valleys-and-peaks behavior, as one can tell by the clear dotted line.
Source: Cycles – The Science of Predictions, 1947
Due to their historical statuses as not only a practical commodity, but also as money, the prices of gold and silver have acted somewhat differently, and one is therefore left to ponder whether or not their historical status as trusted money, when compared to controlled paper assets, has led keystone market makers to undermine their underlying fundamentals so as to promote directed wealth-creation through the flooding of all markets by a monopolized medium of exchange; in this case, the Federal Reserve Note, a counterfeited U.S. Dollar. In this quest to promote paper, the value of gold and silver, in terms of their monetary applications, is taken away, and thus they are taken to be merely industrial metals by the markets, as opposed to the precious metals they have for centuries regarded. That is why the gold and silver markets were quiet for so long over the past half century.
In other words, gold and silver pose a threat to fiat supremacy, and a concerted war by united fiat-wielding nations has led to a suppression of precious metals prices, and populace access to the metals, in a bid to make them, in the minds of the people, a story of bygone ages, ancient times. Today, this “currency war” has turned nations against one-another. And now, their beleaguered mediums of exchange behave in confused and cornered manners.
From the year 1833-1922, gold was priced between $20.65 and $21:
Gold did not appreciate in exciting ways between the mid-twenties and late-sixties, but as the U.S made moves to officially announce the U.S. Dollar as fiat—that is, not backed by even specks of gold—and backed by the strength of the U.S. economy alone, it spiked. The so-called gold cartel had lost its power. Its crescendo, one could presume, was initiated by the Soviet invasion of Afghanistan, which, for a world neurotic over the Cold War, resulted in global tremors as fears dictated the behavior of market, and societal, participants.
In the United States, the largest economy in the world, the war only added to the stress of devastating inflation and high unemployment. The future of American hegemony and super-power status seemed questionable.
After the paper-tech bubble of the nineties, gold eventually fell to around $250, under the somewhat contrived auspices of “Brown’s Bottom,” wherein the then finance minister of England, Gordon Brown, announced ahead of time that England would be selling-off notable portions of its gold reserve.
Silver, like gold, did not act like other commodities during a similar timeframe. From 1876 and 1886, the price of silver tumbled: from 1792 or before until 1861, it had been $1.29 per troy ounce. By the year 1941, as the “war nickel” was put into circulation, the price of silver was $0.35 a troy ounce.
Alongside other newly discovered silver sources, the Comstock Lode can, in part, explain the fall in the price of silver. But, also very important, silver was demonetized, in favor of a gold standard, by the United States Congress in 1973. This act is referred to popularly as the “Crime of ’73.” This would send silver to historical lows.
In the time period chosen, sugar flirts more with the fifty to sixty year commodity price cycle than do gold and silver. Aberrations occur in the seventies as inflation hits in the United States, whose U.S. dollar represented a reserve for all central bank-issued fiat currencies transacted on the planet. Since being taken off a quasi gold standard in 1971, usefulness of the U.S. Dollar had been undermined, and still today is undermined. This debasement of the U.S. dollar arose as a result of inflation of the monetary supply by way of central bank—the Federal Reserve in the U.S.—coordinated fractional reserve banking polices under the Bretton Woods quasi-gold standard.
Once divorced from fixed exchange rates with gold, the newly pure fiat currency fell to its free market exchange price versus gold. Thus, gold broke out from $35 per troy ounce in 1969 to $500 in 1980.
The US dollar chart for the aforementioned period parallels an inverse of prior commodity and gold and silver charts. You can find below the 1979-1980 value in terms of gold. Clearly, the price spike in gold and silver took place after the fact of dramatic U.S. dollar devaluation—roughly 90% the US dollar lost to gold.
You see that, since the initial crash of the U.S. dollar beginning in the late sixties, the U.S. dollar sputtered along its bottom until 2003, when you see the next price (downward) trend emerging. The U.S. dollar lost most of its value over the last sixty years as war was waged in Vietnam. Similarly, the next significant price trend emerges as the US invades Iraq. In 2003, the US dollar hit an all-time low against the Euro. Expect, over the course of the next decade, as conflagrations continue to light up the middle east, increasing tensions between the U.S and Iran, Russia, and China and so precipitating money printing, for gold and silver to revalue and find new bases in the four-digit and three-digit price ranges, respectively, as the U.S dollar returns to its inherent value upon economic restructuring or collapse.
Expect in the future, as gold and silver once again is discussed as possible options of exchange, for the prices to regulate, but well above their prices of old, for the fiat money experiment has been for the next century, or perhaps even two, completely undermined, and a totally new system will have to be implemented. Whether this takes the form of a precious metals backed reserve or the form of credits on a card, the interim will spell wild price swings, most markedly to the upside, for all commodities and resources. It is totally reasonable to anticipate a break in the 54 year swing in wholesale commodities, and the continuation of the last ten years in precious metals. The dollar will continue its trend of the last thirty years, and we will see a whole new market space open up.