The recent dramatic rise in the price of gold and silver, coupled with lingering inflation, represents a tell-tale sign that the U.S. economy is in trouble. It also represents a lingering reverberation of Richard Nixon’s fateful August 15, 1971 decision to disconnect United States paper currency from the gold standard.
Historically, the gold standard served as a mechanism that put limits on government spending. However, in 1971, Nixon, based upon a variety of financial pressures (including U.S. involvement in Vietnam), felt it necessary to de-link the dollar from gold. This immediately opened the door for what has turned into a near unlimited production of U.S. fiat currency.
The availability of fiat currency, in times of financial emergency, can indeed be helpful. For instance, during the COVID-19 pandemic, the U.S. government, through the Federal Reserve, distributed trillions of dollars for such things as stimulus checks and subsidies to keep businesses afloat.
However, the dramatic production of fiat currencies can also produce dramatic inflation. Specifically, when you have more dollars chasing the same amount of goods and services, this devalues the currency which results in higher prices.
Consequently, the increasing demand for gold and silver, based upon their being perceived as financial “safe havens” that help preserve spending power, is not surprising.
