Gold up 19.5% annually as fiat currency loses value

Gold gains 19.5% in a year as fiat money depreciates

As highlighted in the debate, gold has posted a 19.5% return over one year, roughly €11,250 per kilo, precisely when legal tender continues to lose purchasing power. Those holding savings in euros have likely noticed this more in their grocery basket than on their bank statement.

The thesis running through this issue argues that there is no accident involved. Indiscriminate money creation and its arbitrary distribution are eroding the middle class's purchasing power via the silent mechanism of inflation, with essential goods rising faster than the average. Savings bleed away without anyone signing a decree.

Avenues for alleged destruction of money's value

The diagnosis unfolds across several fronts. First, uncontrolled monetary emission and its arbitrary allocation. Second, depreciation driven by inflation that punishes essentials more than non-essentials. Third, the high cost of raw materials, energy, and capital goods, which, according to this reading, has only benefited large corporations. And fourth, the distribution of money to what are called passive classes, while productive classes, the thesis claims, are denied basic sustenance.

The result, summarized in the prevailing discontent: labor factors have been destroyed, speculation rewarded, and savings have lost their function. The closing slogan of this argument—"you will have nothing and be happy"—captures this mood better than any chart.

Since when has money lost value? From Johnson to Nixon

Nuance matters here, because attributing everything to a single date is an error. It is argued that the break did not start with Nixon in 1971, but earlier. Johnson allegedly shifted the trend in 1963 by cutting the top marginal tax rate by twenty points, down to 70%, a threshold maintained, with few exceptions, for the trinc 18 years. Nixon, Ford, and Carter only moved the income level at which those rates applied, lowering it from $400,000 to $200,000 in contemporary dollars.

The gold episode bears his signature. The Federal Reserve had been printing dollars to finance the Vietnam War; the French sensed trouble and sent a ship to exchange their bills for metal before it was too late. Nixon suspended convertibility with a measure announced as temporary. It has remained so for more than half a century. With Reagan came the self-proclaimed heirs of Hayek and Friedman, convinced that taxes confiscate wealth.

A synthesis adds another link: before the discrepancy became apparent, the debacle was postponed by China's entry into the World Trade Organization, which relocated production systems and added cheap labor to the global board.

Fractional reserve banking: the 1% holding up the system

The underlying mechanism points to banking. With a fractional reserve of 1%, for every hundred euros deposited, only one needs to be available: the rest is lent out and re-enters the circuit to be lent again. This leads to the most radical conclusion of the matter: if many people withdrew their money simultaneously, the system would face hours-long problems, not years-long ones.

It is wise to separate fact from desire. A mass withdrawal of deposits is a theoretical scenario with unpredictable consequences, not a manual recipe. Those advocating taking money out of banks present it as an individual action that would cause harm even if uncoordinated. Critics remind us that outside the system, cash holds little value either, and current accounts have become almost mandatory.

Gold, second-hand goods, and abstention: strategies for protection

In the practical chapter, responses vary widely. The most repeated: demand physical gold, exempt from VAT; buy second-hand items, which also evade this tax; do not vote; and pay producers directly to bypass intermediaries. Metal tops the list due to its status as money that cannot be printed.

The downside is that each of these doors is closing. Electricity bills were once paid in hand and now almost require direct debit; second-hand markets are on the regulatory radar; traditional food markets are losing ground as home production, chicken coops, or seeds fall under regulation. And then there is the digital euro, the scenario that would make cash an exception. Calculating gold as a refuge has numbers behind it; calculating its daily usability has far fewer.

Productive economy versus financial economy

To measure the imbalance, geopolitics is invoked. NATO's GDP is 19 times Russia's, yet it is admitted that similar arms supplies cannot be sustained. Russian GDP was estimated at €2,129,516 million in 2022; the Eurozone's at €14,372,465 million in 2023. This disproportion fuels the thesis that financial wealth and real industrial capacity have decoupled.

Underlying this is an older discussion: whether to view the economy as a game with known rules where the best player wins, or as a scam where the dealer keeps the deck. The first reading admits winners exist. The second flatly denies it.

With gold at these levels and inflation eating away everything else, the question is not who is right, but how long this can hold. Does anyone remember a crisis resolved without printing more?