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A Return to 1970s Monetary Chaos

Today, spot is at $1700/oz with a massive supply of excess reserves that, if not contained, signals a new 1970s-like inflationary episode. As always, gold will signal the error.

Michael Kendall
Man on the Margin, An Inflationary Contraction II, May 13 2020

The Fed’s previous monetary experiment in excess base money supply resulted in the 1970s global stagflation and decline in standards of living. With the 1971 end of the Bretton Woods dollar link to gold, the POG went from $35/oz to $850/oz before settling at $350/oz. The electorate wisely chose Reagan and his policy mix of stable money and low taxes to end the inflationary chaos. Reagan established a gold commission, and though it unwisely rejected a return to a gold standard, stable money was a core component of Reagan’s monetary policy.

Gold began its climb from the relative stability of the optimum $350/oz in 2006. Today, spot is at $1700/oz with a massive supply of excess reserves that, if not contained, signals a new 1970s-like inflationary episode. As always, gold will signal the error.