Published: 2020.08.06. The rise in the price of gold is a sign of the beginning of inflation

The rise in the price of gold is a sign of the beginning of inflation - 보기

As you know, the world gold price is formed in US dollars. Over the past few months, the US currency has depreciated significantly against many currencies of other countries. Since March this year, the dollar index has dropped by 10%. This was facilitated by the deterioration of the situation in the American economy due to the spread of the coronavirus, but primarily due to the growth of the money supply, which was poured into the economy by the US Federal Reserve. The Fed's soft monetary policy leads to the gradual destruction of the dollar.
To understand this, it is enough to look at the growth of the Fed's balance sheet. Since February this year alone, it has grown from 4 to 7 trillion. dollars. Through the purchase of securities, the money supply enters the financial markets. The leadership of the American Central Bank is doing everything possible to save the economy. But at what cost is this achieved? The risks of the start of inflation are growing, but at the same time the stock price is growing. And now precious metals are showing a tremendous price rally.
Now we can observe the devaluation of the US dollar against many assets. Proof of this is the rise in the price of gold, silver and even bitcoin, which is showing some recovery again. Thus, it is fiat currencies that are not backed by anything and which can be printed at any time are subject to devaluation. They are also called credit money. And only those assets that are limited in their quantity will be able to retain their value.
Official inflation is usually measured in terms of the rise in consumer prices. But inflation there is still not so much noticeable due to an oversupply of goods on the market, in contrast to precious metals, the deficit of which we could observe in the spring during the peak of the epidemic and quarantine measures. There are a lot of consumer goods on the market now. This fact is holding back the rise in prices. But in the event of an economic depression, the situation can quickly change.
How is the current situation different from previous crises? In the past, during periods of high inflation, central banks raised interest rates to slow the economy overheating. This has been the standard solution for decades past. When a new cycle began, then again there was an opportunity to reduce rates to stimulate the economy. At the same time, the purchasing power of money was melting, since real rates were negative (interest rates of the Central Bank minus inflation). We are seeing something similar today. The only difference is that official inflation is very low and interest rates are zero or even negative.
The problem is that central banks can no longer use such a tool to manage the economy. Now the markets are manipulated directly. Previously, this happened very rarely and in exceptional cases. But now governments and central banks are increasingly financing short-term growth with credit money.
Where will such a policy lead? In the end, there will be a complete destruction of currencies and the welfare of most citizens. Each new crisis leads to currency devaluation. At some point, the moment will come for monetary reform. The state will get rid of its debts at the expense of the population. And then the process can start over. Gold owners will be able to survive the crisis much more easily and at the same time maintain their savings for the long term.