Could Your Purchasing Power Decrease by 50% In 4 Years?

Underreported consumer price inflation came at a new over 40-year high this past week as the US government's Bureau of Labor and Statistics admitted to a 9.1% loss in the fiat Federal Reserve notes or fiat US dollars year purchasing power.

Of course, the US government's statistics department has the motive to underreport price inflation constantly and seemingly forever more since the Federal Government makes payments to Social Security, pensions, and many other unfunded liabilities owed accordingly growing to the official inflation rate.

There are only a few developed economies in the world with worse price inflation than the United States is currently suffering.

Hide the Pain Harold inflation meme got an update. Unfortunately, his tiny raise at work won't come close to covering his loss in living standard. At the very least, he got tons of likes on Twitter.

Hopefully, Harold does not investigate the inflationary rip-off further, for if and when he finds out that real price inflation is more likely in the middle teens at the moment, it may be difficult to distract his ongoing pain with social media memes mocking the insanity of our fiat financialized world.

One thing you can take away from this week's SD Bullion Market Update is a simple mathematical formula you can use to understand how badly inflation ruins people's purchasing power. The RULE of 72 is simple to use. Simply divide 72 by the inflation rate to determine how quickly your power halves or loses 50% in real terms.

For instance, if we continue this 9.1% CPI official inflation rate, we'll halve our collective fiat US dollar purchasing power by half within eight years. Before this time of the year in 2030, whatever your income is, it buys half what it does today in summer 2022.

It's worse than that, most likely, so if we use the old 1980 methodology for measuring price inflation near 17% per year, our incomes will halve in purchasing power by the fall of 2026.

In a bit of short-term contradictory financial information, worldwide on a relative basis, the highly inflationary fiat US dollar is gaining strength still versus its main competing fiat currency competitors.

Well, for now, it appears the fiat US dollar gets to continue running with the strongest fiat currency baton. For example, the other major fiat currencies of the August 2019 Go Direct secular price inflation central banker agreement in Jackson Hole, Wyoming, involved the fiat Fed, ECB, BoJ, and BoE. The DXY technically appears on this chart as if it is headed to 120, perhaps by late this summer into early fall 2022.

Of course, any financial disorder creating black swan could change current trends quickly. Given how badly financial market assets and commodities have been selling off of late, something terrible is likely due sooner than later in financial markets.

And while commodity price selloffs may mean a coming reprieve in the official inflation rate's seemingly endless rise of late, remember the fiat US dollar's M2 pile has been up nearly 50% since August 2019. This secular price inflation regime is only getting started and will likely last decades.

The silver and gold market sold off again this week, nearing what looks like firmer longer-term technical price support, but more on that in a minute.

The gold spot price peaked at nearly $50 per troy ounce before the high 9.1% CPI figure was made public. 

The BIS gold desk was likely working overtime this summer. We'll talk about the ridiculous selloff situation currently for the two monetary precious metals as massive bullion buying is happening by our customer base taking advantage of spot price weakness.

The daily silver spot price closes this week below $19 oz, with the daily gold spot price just above the $1700 oz level.

The gold-silver ratio closes at 91.

On a longer-term timeline, here is where gold currently sits in fiat US dollar terms. One with fiat US dollars to spend might take advantage of the aforementioned fiat currency's relative strength at the moment versus gold. 

For perspective, in 2008, during the global financial crisis, we saw gold spot fall from over $1000 oz in March to just below $700 oz before infinite QE policies kicked off in the USA. If we are sleepwalking into the second half of the global financial crisis here in 2022, we could see the gold spot price in fiat US dollars fall further. Still, an equivalent move would be near $1500 oz at some point later this year.

On a longer-term timeline, here is where silver currently sits in fiat US dollar terms. We'll dig into more reasons why near $20 oz silver is superb long-term value, but I want to show you how insane things got in the 2008 GFC for perspective's sake.

From naked short silver Bear Stearns' failure when silver neared $22 oz in early 2008, the spot silver price fell into the high $8 oz level by the time infinite policies kicked off at the end of 2008.

Low teens silver bullion was possible but not easy to procure. Of course, much like March 2020, the silver bullion industry couldn't service the demand. Thus, nearly no silver bullion products existed at reasonable premiums relative to the collapsing spot price in fall 2008.

So there are two attitudes one can take now if you are bullish on bullion moving forward. Either the market stays eternally rigged, or at some point, this status quo changes, perhaps violently.

I am in that latter camp and wouldn't bother doing this work otherwise.

Judging by how much silver bullion currently is and has been sold since the late January 2021 Reddit WallStreetSilverSqueeze movement kicked off, I'd say these low silver spot prices are only going to exacerbate the long-term squeeze. 

I can eyeball about 200 million oz of silver float, which has left the LBMA system.

COMEX also registered silver lost over 5 million ounces this week as that silver fled into the eligible not deliverable at these price points pile instead. 

Look for both figures to keep falling, especially the long gold and silver spot prices flounder at these current low levels.

Last year global silver demand was at a record number, with a massive amount being physical silver coins, silver bars, and silver rounds.

US silver bullion demand has gotten so hot from the 2020 Covid shortage that even typical only gold refining Switzerland and increasingly aggressive Turkish silver refiners have gotten into the silver bullion bar United States supply for high demand game.

London precious metals consultancy Metals Focus is showing slide decks with titles like "A new phase of Uninterrupted Deficits" for silver to persist beyond 2022.

This gold price data chart starts in the year 2010. The data sets begin with gold priced at $1099 oz to commence in 2010 up until yesterday's gold price trading data.

If we simply aggregate gold price trading data outside New York COMEX trading hours, the blue line here, we get a gold spot price in fiat US dollar terms that would currently be at $2,843.97 oz. Far lower than the current gold spot price, near $1,700 oz at the moment, represented here by the red line. 

I bet we would get much closer to $5,000 oz gold if we pulled London trading hours from the ongoing data as well after all London Gold traders and the US Treasury conspired in 1974 right before COMEX began trading gold futures in 1975 with the then-new CFTC supposedly there to referee the price discovery action. Last week we covered outsized gold derivative markets that have also helped make western gold price discovery markets easier to toss around in short-term price management selloffs.

Best-selling author James Rickards had the following no-nonsense take on western gold price suppression in 2017. Have a listen to his viewpoint.

This outside CME Group COMEX trading hours data gets way more ridiculous in silver, by the way.

Let's have a look at the broken-hearted. This market will forever stay a rigged crowd.

Starting in 2010 at $16.94 oz silver, we now have the red spot silver price currently below $19 oz where it closed this week, but if we take the silver price trading data for the last 12+ years outside of New York COMEX hours, we get an aggregate silver spot price blue line up to $109.51 oz.

The blue line ramping up walls after the March 2020 Covid spot price crash and infinite QE policy drove spot silver toward $30 oz. It took tons of derivatives and varying TAMP measurements to keep silver in polite price check.

Again for the broken-hearted, this silver market will forever stay a rigged crowd. Let's look at this same chart but for this entire fiat currency era starting in 1970, when silver started that year at $1.925 oz. The blue outside Comex New York trading silver price eventually reconverts with the red-colored spot price line. It did in 2006-2008 when Bear Stearns got bankrupt. The blue and red line also converged in 2011 near $50 oz silver back when likely caught short JP Morgan nearly got taken to the cleaners by silver in April 2011.

The question for me moving forward is when these two lines reconvert, and at what exorbitantly higher silver spot price will they do so?

In the meantime, I am taking the attitude of the price discount advantage taker, squeezing more ounces for the long haul, especially at these relatively shallow spot price levels.

That is all for this week's SD Bullion Market Update.

As always to you out there, take great care of yourselves and those you love.

← Previous Next →
James Anderson
James Anderson
Senior Market Analyst & Content

A bullion buyer years before the 2008 Global Financial Crisis, James Anderson is a grounded precious metals researcher, content creator, and physical investment grade bullion professional. He has authored several Gold & Silver Guides and has been featured on the History Channel, Zero Hedge, Gold-Eagle, Silver Seek, Value Walk and many more. You can pick up Jame's most recent, comprehensive 200+ Page book here at SD Bullion.

Given that repressed commodity values are now near 100-year low level valuations versus large US stocks, James remains convinced investors and savers should buy and maintain a prudent physical bullion position now, before more unfunded promises debase away in the coming decades...