The Day the Dollar Died

The day the dollar died... John Doody takes us back to August 15, 1971... What the gold market looks like today... Central banks are buying a lot of gold... Our latest Alliance Town Hall... What the mispriced bond market means...

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Fifty years ago, almost to the day, the U.S. dollar was murdered...

That's how Gold Stock Analyst editor John Doody started his latest monthly issue, sent to subscribers on Monday.

If you're a subscriber and you missed it, I (Corey McLaughlin) urge you to check it out... It's a must-read for the history lesson alone, not to mention John's gold stock recommendations.

For starters, John takes readers back to the early 1970s when the course of financial – and world – history changed forever... Specifically, he talks about August 15, 1971, the day the dollar began its slow death.

As John explained, that's the day policymakers in President Richard Nixon's administration and others gathered as part of a three-day weekend at Camp David (just 50 miles from our headquarters in Baltimore, Maryland).

At the time, inflation was high (5.8%) and rising... unemployment (6.1%) was high and rising... and Fort Knox was literally running out of gold, as other countries were buying the gold that backed the U.S. dollar (at a fixed $35 per ounce) at a rate the government couldn't handle...

As John wrote in his monthly issue...

Over the prior decades, so many dollars had been printed and exported to buy foreign goods and services – and to fight the Vietnam War – that there was no longer enough gold at Fort Knox to redeem all the foreign-held greenbacks. In 1945, at the end of WWII, the U.S. had more than half of the world's official gold reserves – 574 million ounces. But by 1971, the dollar's "good as gold" status was threatened. In July 1971, Switzerland redeemed $50 million for gold, and France followed later that month by exchanging $191 million of paper for the metal.

On the open markets, gold was generally trading at $35 and above, leading some smaller governments to arbitrage the price difference... cashing in dollars for gold at $35 and then selling the ounces for an immediate profit of 10% to 20%.

If government leaders did nothing, the U.S. economy would continue to deteriorate, and – with political motivations always a thing – Nixon could kiss his reelection in 1972 goodbye.

When the weekend was over, Nixon announced a series of big changes to the U.S. economy...

The president went on TV to explain...

First, prices were frozen for 90 days, a dramatic move not done in the U.S. since World War II... a 10% surcharge was introduced on imports... and, most importantly, although it was hardly noticed by the public at the time, John says, the "gold window" was closed...

The "gold window" – the imaginary bank teller window in the U.S. Treasury building where nations brought in their paper dollars and left with Fort Knox gold – was closed... This edict survives today.

As a result, no nation can exchange its paper dollars for U.S. gold. Ending the dollar's convertibility into gold set it adrift, totally unanchored and subject to being blown to and fro by economic winds from any direction.

Ever since then, John says, the ending of the dollar's direct link to gold (off the $35 fixed price ordered by President Franklin D. Roosevelt in 1934) has had consequences for investors and their savings...

We won't get into all of the history and nuance of what happened over the last 100 years that got the U.S. to the point where Nixon made the decisions he did. But, in short, the Bretton Woods Agreement – which was created by World War II allies and made the U.S. dollar the world's reserve currency – was essentially over in 1971...

The world's reserve currency was no longer moored to a hard asset...

Gold's price was set free (and climbed higher) while the dollar was let loose (and has fallen). And the era of floating currency exchange rates was born...

Fifty years later, the dollar still has its "reserve currency" status in name, but history suggests it won't last forever (with changes happening every 80 to 100 years since 1450). As we wrote in the February 7 Digest...

If the past 570 years of history are any indication, the dollar's days as the global standard may be numbered...

Since the world stopped using ancient Roman currencies around 1450, every subsequent shake-up in the global economic order has been caused by excessive debt.

It doesn't take much imagination to think about a tectonic global currency shift featuring the intersection of the U.S. dollar, the Chinese yuan, gold, and bitcoin.

In the meantime, despite a weak performance these last two months, gold's price – linked to a tangible asset pulled from the ground – is up big time. As John says in the August issue of Gold Stock Analyst...

Gold has soared from $35 per ounce to $1,763 per ounce on August 6, this issue's data day. That's a gain of almost 5,000%. Yes, the metal has had some ups and downs, but it always comes back to soar higher.

One constant factor driving gold is that politicians' No. 1 job is to get reelected. To do so, they are always trying to get nine slices out of the eight-slice pizza and reward voters. This economic trickery requires policies that are either inflationary or involve deficit spending, or both. The gold price is the thermometer that shows the impact of these policies.

To that point, you might be wondering what the price of gold is saying today...

Today, gold is trading near $1,750 per ounce, down about 13% from its most recent high near $2,000 in August 2020.

Early last year, John called for gold to hit $3,000 per ounce in the next few years... he still sticks by his call for all the reasons he described above...

It's hard to argue against them, as we don't see spending policies slowing down anytime soon, or inflationary forces disappearing overnight, and there's a 50-year track record that has held up strong. As John says...

The gold train, powered by the current U.S. deficit spending and loose monetary policies, is ready to leave the station.

In fact, John says, if you don't have exposure to gold in your portfolio by now, today is a great time to add some...

Buying the dips (like now) is the best answer for those who aren't already on board.

And John doesn't recommend folks just go out and buy any old gold stocks, or gold exchange-traded fund ("ETF"). His Gold Stock Analyst Top 10 and research are way better than that.

While the price of gold is up 548% since the start of 2001, John's model portfolio has roughly doubled that return... up 1,056%, knocking the pants off its main benchmark, the VanEck Vectors Gold Miners Fund (GDX).

Notably, central banks around the world seem to agree with John...

As Bill Shaw, who writes the Stansberry Gold & Silver Investor newsletter, pointed out in his monthly issue this week, the latest data from World Gold Council's supply-and-demand reports reveal some interesting trends that support the long-term case for gold...

For the first half of 2021, total demand for gold was 1,833 metric tons – a 10% drop from the first half of 2020 (2,044 metric tons). But that stat alone is misleading...

The biggest drop came from ETF outflows, which is not surprising given that 2020 saw the highest inflows to gold-backed ETFs ever at 874 metric tons – more than doubling the previous high.

Gold-backed ETFs sold off again in the first quarter of 2021 – dropping another 170 metric tons. But buyers returned once again in the second quarter – adding about 41 metric tons. But here's the real kicker, Bill said...

Central banks are buying again... It's a trend we've been following for years. In 2018, central banks added 656 metric tons to their reserves – the most ever recorded. However, in 2020, central banks added only 273 metric tons. And the third quarter even saw a net outflow of 10 metric tons – the first net outflows since 2010.

So while that trend has slowed in recent years, it's reversing again... Central banks – led by Thailand, Hungary, and Brazil – added 333 metric tons in the first half of 2021. That's more than last year's total and 63% higher than the first half of 2020.

It's clear that central banks are buying for the same reasons we do – to diversify, store wealth, and hedge against inflation... They're ignoring the noise and looking at the big picture.

Bill also says that demand for gold coins and bars is also soaring as investors worry about inflation, and the jewelry industry is bouncing back as well. He says the only reason the total dropped is due to the heavy selling of gold-backed ETFs after a historic run...

In this environment of unending stimulus and spending, it's clear that investors around the globe understand gold's value as a safe-haven asset.

That's why our editors suggest that everyone should own at least some gold in their portfolio, or physical bars or coins somewhere safe... In fact, you will hear the importance economic guru Lawrence Lindsey places on having hard assets like gold in his own portfolio in an exclusive, wide-ranging, two-part Q&A in next week's Digest.

Speaking (more) about inflation...

In this quarter's edition of our Stansberry Alliance Town Hall, several of our editors gathered to talk about what's happening in the markets today – and inflation is, of course, what everyone is discussing.

In this video, available as a benefit for our Alliance partners, Director of Research Matt Weinschenk, Retirement Millionaire editor David "Doc" Eifrig, and Stansberry NewsWire editor C. Scott Garliss talk about what inflation means for you...

You can check it out here or click the video below...

Here are a few highlights...

Doc started by explaining why he's so concerned about inflation – because it effects people's everyday lives and daily purchases...

Inflation is not just a monetary phenomenon... If you are on a fixed budget and retired and living off of your Social Security check, inflation right now is real. It's absolutely real.

He talked about his own recent experiences buying airline tickets, rental cars, and what he's observed in the restaurant industry, where supply and labor shortages have led to higher prices...

There's also a form of inflation that's happening where cereal manufacturers are changing the size of the box and the quantity of food. That's not really recorded. But you're getting less cereal in a box.

Doc, Matt, and Scott broke down the latest inflation data...

And no surprise to regular Digest readers, it's showing inflation is, no doubt, real... They shared their views on whether it will be long-lasting, or "transitory" as the Federal Reserve likes to say (meaning temporary).

We'll quote Scott here, but be sure to check out the video for the entire discussion. Scott believes inflation won't run as high as it is right now forever because...

The world is all reopening at once. There's suddenly demand for a lot of different raw materials and goods to produce items. And when everybody is running for that same thing, if everybody wants that same amount of copper [for example], the price is naturally going to go up. It's a basic supply-demand issue. I think that's a lot of what we're experiencing right now.

Scott says supply-and-demand balances should gradually get back to a semblance of normal, but higher prices may stick around longer than folks on Main Street would like them to...

It's sort of like the stock market. It's a time horizon event right now... It will take time. "Transitory" in the minds of the Federal Reserve could be a year to 18 months. Most people would think three months. I don't think it's going to be that quick.

Doc also got philosophical (which we love)...

He wondered about where we're headed and what central-bank and government policies are doing to the fabric of our society...

This won't be the first time the government has inflated themselves out of [debt]. That's been the mode of operating. I'm not losing sleep yet – but is this the end of the republic?

Have we gotten to the point where you're printing money and it's just made up? Is that real money when it can just be made up by government making promises to let people stay at home and collect checks?

Later in the Town Hall, Matt and Doc will welcome editor Eric Wade to talk about his new service, Crypto Cashflow.

After leading his subscribers to countless triple-digit gains in the crypto space with his Crypto Capital newsletter, Eric is now trying to help folks find the best opportunities to earn healthy income with cryptos today "outside the system."

This is a must-watch and a benefit for our Alliance Members that we added last year.

For those unfamiliar, our Alliance partnership is our highest level of membership...

It gives you a lifetime subscription to Stansberry Research at a one-time price. We call our Alliance members "partners" because they are the reason that we've been successful over the last 20 years.

These are real investors, looking for real research – not just the latest "hot tip." With most every new product we launched, no matter how much it costs, it's been included for free to Alliance members.

And over the years, we've added extra benefits for Alliance partners, like special access at our Las Vegas conferences... and these Town Halls.

If you're a fan of one or more of our services today, and simply "want it all," it's a great investment – and value – for subscribers.

Membership to the Stansberry Alliance is by invite only, though. If you are interested and would like more information, simply call our customer-service team at 1-800-403-7631.

New 52-week highs (as of 8/11/21): ABB (ABB), Atkore (ATKR), Brown & Brown (BRO), CBOE Global Markets (CBOE), Comcast (CMCSA), Costco Wholesale (COST), Eagle Materials (EXP), Innovative Industrial Properties (IIPR), James Hardie Industries (JHX), Lennar (LEN), Markel (MKL), Nuveen Municipal Value Fund (NUV), Invesco S&P 500 BuyWrite Fund (PBP), ProShares Ultra S&P 500 Fund (SSO), TFI International (TFII), ProShares Ultra Utilities Fund (UPW), Vanguard S&P 500 Fund (VOO), Consumer Staples Select Sector SPDR Fund (XLP), and Zebra Technologies (ZBRA).

In today's mailbag, more feedback on Kim Iskyan's Tuesday Digest... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Just wanted to let Mr. Iskyan know that I had the exact same experience with Regions Bank buying a Florida home. Are the banks that over-regulated or do they just not want to lend at these low rates?" – Paid-up subscriber Martin M.

"The most effective way to deal with bad experiences, like Kim experienced, is to use social media. It by-passes all the usual horrible nonsense of dealing with Customer Service. I may have learned this from a Consumer Reports article.

"In the past (1970s, 80s?), when I felt I had fully justified complaints (as Kim's were) I wrote what I hoped was an intelligent unemotional letter to the chairman, as one responder recommended. I used to mark the envelope near the chairman's address 'Personal and Confidential'. That way the chairman's secretary/gatekeeper always gave the letter to the chairman, unopened. And he/she read it! And problems were resolved in a satisfactory manner.

"Unfortunately, I have not found the 'Letter to the Chairman' method to work anymore. Like many things in America, the corporations are just as broken as the Federal Government. There doesn't appear to be much integrity or customer care, even at the chairman level, which is where integrity, honesty, and caring for the customer begins. All most of them care about is themselves, their stock options, and all things that satisfy their personal greed and egos." – Paid-up subscriber Michael U.

All the best,

Corey McLaughlin
Baltimore, Maryland
August 12, 2021