International Forecaster Weekly


Gold and silver prices fell 3.5% and 11.5%, respectively, last year – and started the first official trading day of 2022 down another 2ish percent.

            Nevertheless, they’re still a solid – perhaps the best – place to have your savings, especially for the long run. 

            Why? Because the fundamentals of gold and silver remain strong as we embark on another year of work, play and investing for the future.

Guest Writer | January 5, 2022

By Dave Allen for Discount Gold & Silver

Hope your holiday season was safe, fun and relaxing and that your new year is off to a good start.

            Gold and silver prices fell 3.5% and 11.5%, respectively, last year – and started the first official trading day of 2022 down another 2ish percent.

            Nevertheless, they’re still a solid – perhaps the best – place to have your savings, especially for the long run. 

            Why? Because the fundamentals of gold and silver remain strong as we embark on another year of work, play and investing for the future.

 Proof Is in the Fundamentals

One definition of fundamental is “a central or primary rule or principle on which something is based.” 

As Kelsey Williams has observed, gold and silver each has one basic fundamental:

Gold is real money.

Silver is an industrial commodity.

Both of them have a secondary use that is similar to the primary fundamental of the other metal. For example, gold is, first and foremost, real money, but it also has industrial applications. Silver is primarily an industrial commodity but has a secondary use as money.

The basic value of either gold or silver stems from its primary fundamental. This means that gold derives most of its value from its role as real money, while silver’s basic value stems from its use in industry. 

And here’s the thing: the primary fundamental for each metal will always be the same. That is, primary demand for gold will always be for its use as money. And that value will always exceed any secondary applications in industry by a wide margin.

Silver is similar but the opposite from gold. That is, it will always be valued primarily for its use in industry – with its use as money being a distant second.

Are Gold and Silver an Investment?

Here’s another definition: Investment…something that’s worth buying because it may be profitable or useful in the future.

Williams asks, Why do people invest in stocks? His answer: because companies “provide goods and services of a productive nature that add value to our economy – today and in the future.” 

Over longer periods of time, it becomes value added, which means that there is profit potential, without regard to price increases or bargain sales.

These explanations and their fundamentals are independent of the measure of value used to quote their price. For example, whether we measure the price of butter or, say, Apple stock in dollars – or other currencies, beads, grains, or gold – doesn’t affect the value of the butter or stock. 

Instead, Williams, rightly argues, the value comes from the use and consumption, or the added convenience, efficiency, comfort, satisfaction, and complimentary benefits to our standard of living.

The price of anything is an implied measure of its value. But value to whom? 

If the finest antique vases that money can buy is of no interest to me because I don’t collect vases, then that product has no value to me at any price.

What about gold? There’s no shortage of people, corporations and pension funds that see gold as an investment, even if it’s just as a hedge against inflation, for example. 

So, can we apply the definition of investment to gold? That is, could the metal “be profitable or useful in the future?” And if gold’s an investment, what’s its value? Can we consume it, like butter? No. Does its use in jewelry indicate its value? Yes, but only on a secondary basis.

Remember, gold’s primary value is in its use as money. As such, it’s not an investment. It’s real money because it satisfies the three basic properties necessary for something to be money; i.e., it's a: 

Measure of Value

Medium of Exchange


Store of Value.

For anything to be money, it must have allthree of the foregoing characteristics. 

Throughout 5,000 years of recorded history, gold stands alone in that sense. 

The U.S. dollar – and other paper currencies – are not money because they’re not stores of value. They’re simply replacements, or proxies, for real money.

So, if gold does have value, do we ‘invest’ in it because it “may be profitable or useful in the future?” Possibly. Certainly, millions of people do. 

But why? Gold isn’t consumable. We don’t eat it, or otherwise use it up. And there’s no value added, as in the case of companies that produce goods and services, which over time add benefits to our standard of living.

So, why then? Why buy, or invest in, gold? Most people invest in something because they expect the price to go up. Hence, they’ll make a profit; remember that an investment is something that’s “worth buying because it may be profitable in the future”. 

But what makes something potentially profitable in the future? We understand the fundamentals that affect various investments in stocks and real estate. 

Generally, a reasonable investor can believe that those fundamentals may eventually lead to expected profits. If gold is an investment then, it ought to respond similarly, right?

So, what are those fundamentals? Here are the major driving factors that most people consider to be fundamentals affecting the price of gold: Interest rates, stock market trends, economic conditions, social unrest, political turmoil, currency exchange rates and war. 

It turns out, however, that none of these things are fundamental factors relative to the price of gold. Yes, none. 

U.S. Dollar Matters Most

As Williams points out, only one factor is correlated, much less highly correlated to gold’s price direction: the value of the U.S. dollar.

Gold is generally priced in U.S. dollars, and trades in gold are settled in U.S. dollars because of the dominance of the dollar and its role as the world’s reserve currency.

Gold is original money. It was money before paper currencies were literally rolled out. 

The U.S. dollar and all paper currencies are substitutes for this original money, gold. And, as we know, all governments regularly inflate and devalue, even destroy, their own currencies.

Over the past century, the U.S. dollar has lost more than 98% of its value (i.e., purchasing power). And, over that same period, the price of gold has increased nearly sixty-fold, or 5,900%.

In other words, higher gold prices over time are a direct reflection of a weakening U.S. dollar. 

The huge increase in the price of gold doesn’t represent an increase in its value. Gold’s value doesn’t change; it’s constant. 

The value of one ounce of gold today – in terms of its purchasing power – is close to what it was 100 years ago. In fact, it’s basically the same it was a millennium ago. 

This is reflected on the chart above, showing the history of gold’s price as adjusted for inflation. The chart shows five major turning points for gold’s price. All of them – in 1933, 1971, 1980, 2001 and 2011 – coincided with changes in direction of the relative value of the U.S. dollar.

Because gold is priced in U.S. dollars and the U.S. dollar is in a long-term state of decline, the price of gold, in U.S. dollars, will continue to rise over time. At the end of the day, what really matters is what you can buy with your dollars, which – over time – is less and less and less. 

Gold’s long-term price is not determined by rising or falling interest rates, multiple geopolitical events, domestic political turmoil, or industrial demand. The only thing to know to appreciate gold for what it really is, is to understand what’s going on with the U.S. dollar. 

When gold was in everyday use as money, it was the measure of value that was used to price the goods and services that people valued. Thus, people paid for flour, bacon, beans and haircuts with fractional amounts of gold, fractional units of currency that was convertible to gold.

Today, we find ourselves trying to price real money (gold) with money proxies (paper currencies) that have no real value. 

So, let’s end how we started; by repeating that gold and silver are a solid, maybe the best, place to park your savings, especially for the long run.

            More importantly, their prices are poised for a consistent run upwards – thanks to a failing U.S. dollar resulting from a perpetual loss in purchasing power.

            Friday’s article will highlight ten major economic and geopolitical factors that will drive the day-to-day fluctuations in our favorite precious metals.

            Whether on their own or in some combination with one another, these factors will weigh heavily on the daily price changes of gold and silver throughout 2022.