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Devaluation of the Dollar Causes Inflation to Soar  Thumbnail

Devaluation of the Dollar Causes Inflation to Soar


Over the past few months, consumer products have increased in price which didn't come as a surprise to us. Below is a segment from our August 2020 article, “Nothing is Free” where we warned of coming inflation: 

“One of the byproducts of printing paper money is the loss of faith in our paper money being a store of value. The value of the dollar has been dropping. Combine that with a surge in real assets such as gold and silver means there are trending forecasts toward rising inflation.”

Since August there have been price surges in lumber, food, car rentals, oil, and overall physical goods. Overall inflation is running at 4.2% the largest 12-month increase since a 4.9% increase for the period ending September 2008.1 Some say the real inflation is above 9% when including items the ‘official’ government measures exclude. Below are impacts of inflation and how prices have increased. 

Lumber Prices 

Within the surge of lumber prices in the past year, the price of a new home has added on average $36,0002. This is due to the fact that lumber shortages are at an all time high. I have seen this first hand as I have a neighbor who recently built a garage on his property to have somewhere to store tools for when he begins building his house.  I recently asked him when he was going to start building and he told me he was going to have to wait due to the high lumber and copper prices. 

In talking with several general contractors, they’ve had to switch how they bid jobs to quoting only labor and excluding the quotes on material since they don’t know what prices will be at the time the job commences.  With 1 in 4 homes for sale being newly built, this has influenced lumber prices to be up 340% from a year ago2. 

Food Price Inflation 

Lumber was not the only good that has increased in price in the last year. We have seen various food products such as corn, soybeans and wheat have the highest prices since 2013. The surge will continue in the upcoming years as China's corn imports push inflation pressures. A lot of the food we eat revolves around the production and supply of corn. Due to the inflation of corn, other products we consume will have increased inflation as well. 

Car Rental and Increased Oil Costs

The pandemic caused the demand for car rentals to decrease which resulted in car rentals selling off 770,000 cars3. With summer approaching and people traveling the demand for car rentals are higher than the supply. Rental agencies are not expected to be fully restocked until 20224. Oil prices are also increasing as the worth of the dollar decreases. If you’re planning a summer vacation, book your plane tickets and rental cars now, as prices will increase.

Mark my Words

The reserve currency for the world is the US Dollar.  However, why would other oil exporting countries accept our nation devaluing our own currency by printing more money?  For every percentage of dollar devaluation, comes an equal percentage increase in the price of oil.  Here is my prediction, the Federal Government will ‘blame’ inflation on the cost of energy saying it's outside of their control.  Smart investors won’t buy this knowing that this money printing is what causes oil prices to surge.  Knowing this administration is pushing for green energy, they may very well like high oil prices to motivate this transition.  However, you can profit from the green energy push by buying silver.

The 2021 Case for Gold and Silver 

Gold and silver is also being affected from the rise in inflation rates. Gold thrives during inflation, for example in 1976-1980 gold rose by 2,100% making it a safe investment. This is directly affected by the devaluation of the dollar5. Silver is severely undervalued during inflation as the production of silver is being used for other purposes other than physical ownership. Silver should be priced around $133 an ounce if compared to the price of gold and the ratio that silver comes out of the ground at 12-15 times what gold does.   The reason silver's price is manipulated so low is because the banks are shorting the price of silver, and have been for years.  Some speculate this goes beyond just profiteering to actually trying to protect the dollar as the world’s reserve currency.  Silver ‘spot price’, around $28 an ounce at the time of this writing, is what I call the ‘paper’ price.  However, one can’t get the physical metal for that price.  The physical price is around $33-$35 for generics and if a United States Silver Eagle is what’s desired, expect to pay $42 an ounce.  Silver, unlike gold, is consumed in industrial applications, from solar panels, batteries, smart phones, computers, and televisions.  With the push toward green energy, silver is a great store or value.  Both silver and gold are commodities that have not experienced the run up that the real estate market, the stock market, cryptocurrencies and other commodities have experienced.  

Physical ownership of gold and silver is a good investment during inflation.  DO NOT fool yourself into buying a mutual fund or ETF as this is not the same thing as owning the physical metal.

This isn't surge in inflation isn’t a direct result from the presidency, with the exception of their increased spending projects, which the Federal Reserve still has to print the money to pay for.  The loose fiscal policy directly stems from the Federal Reserve which is not elected by the people. The Fed is between two calamities.  The first is risking hyper inflation as a result of the near zero interest rates, which in time will create asset bubbles in the real estate market (remember 2008-2009?).  The second is to fight inflation they’d have to raise interest rates and then just paying the interest on the national debt will consume more and more of the Federal Budget.

Feel free to reach out below if you want to talk about investments in gold and silver or have any questions about investing during inflation. 

In your service,

Nathan Wilson

Let's talk about your investments

  1. https://finance.yahoo.com/news/why-food-prices-will-keep-going-up-130929152.html
  2. https://www.cnbc.com/2021/04/30/soaring-lumber-prices-add-36000-to-the-cost-of-a-new-home.html 
  3. https://www.marketwatch.com/story/why-the-rally-for-corn-soybeans-and-wheat-likely-isnt-over-11619713369 
  4. https://www.washingtonpost.com/business/2021/05/01/rental-car-shortage-economy/ 
  5. https://www.goldalliance.com/the-fed-is-surprised-by-inflation-hitting-13-year-high-really/?utm_source=newsletter

This article is for Informational purposes only and is not investment or tax advice. Information provided in this article does not address any individual's personal situation. A professional advisor should be consulted to assess your individual financial needs and goals before implementing any of the opinions presented.