Closing the Gold Window Opened the Door to Modern Monetary Theory (MMT)

This year marks the 50th anniversary of the end of the gold standard in the U.S. In August 1971, President Richard Nixon formally unpegged the U.S. dollar from gold, meaning the greenback was no longer convertible into bullion. Overnight, the dollar became a free-floating currency, measurable only by comparing it to other world currencies.

And yet there were still restrictions on private ownership of gold coins, bars and the like. It wouldn’t be until President Gerald Ford signed a bill in December 1974 that Americans could freely buy and trade bullion, for the first time in over 40 years.

A lot happened as a result. Its price no longer fixed, gold exploded 385% from the end of 1974 to 1980, when the metal topped out at $850 an ounce as the U.S. coped with historical levels of inflation.

Over the past 50 years, gold has expanded more than 46 times, with a compound annual growth rate (CAGR) of about 8%.    

The ability to trade gold freely has obviously been good for investors. Today, gold bullion is one of the most liquid assets in the world, its daily volume standing at more than $145 billion, according to the World Gold Council (WGC). Only the S&P 500 and U.S. Treasuries trade more—but not by much.

The Age of Runaway Debt

The drawback is that, in the years since the end of the gold standard, there’s been a significant and growing lack of discipline when it comes to government spending. Before 1971, there was a natural limit to how much money could be printed. New issuances were dependent on the amount of gold sitting in the nation’s coffers.

Today, with the dollar backed not by a hard asset but by the “full faith and credit” of the U.S. government, the federal debt is closing in on an astronomical $28 trillion, which is more than 130% of the size of the U.S. economy.

To give you some idea of how dramatically times have changed, federal debt in 1960 was only a little over half the size of the economy.

The debt is expected to surge even more in the coming months, now that Joe Biden has been sworn in as president and Congressional control has shifted in the Democrats’ favor. Biden, who turned 78 in November, has called for a $1.9 trillion economic relief package that include $1,400 checks for all American adults.

I’m not advocating that we return to the gold standard. It’s probably no longer feasible. According to the Treasury Department, official gold reserves currently stand at approximately 261 million ounces, for a market value of some $493 billion.

That’s just not enough metal to support an economy as large as the U.S.—not unless the price of each ounce of gold was fixed at something outrageous like $100,000.

There’s been some discussion of making Bitcoin a reserve currency. Like gold, its supply is limited, and it has the potential to scale up. But at the moment, cryptos are far too volatile. Both Bitcoin and Ethereum corrected substantially on Thursday (the first 21st day of the 21st year of the 21st century), with the former falling 13%, the latter close to 19%. 

So for now, we’re left with the current monetary system of unlimited money-printing, which in turn makes each U.S. dollar less valuable and each ounce of gold more valuable.   

The Rise of Modern Monetary Theory (MMT)

What this is all pointing toward is the rapid adoption of modern monetary theory (MMT). I’ve written about the concept before.

In short, proponents of MMT say that governments that issue their own currency, as the U.S. does, are free to spend as much as they want, regardless of the amount of revenue generated. And if the government ends up with a spending deficit, it can just print more money to cover the difference. 

Isn’t this what we’re already doing? In 2020, the federal government spent a total of $6.55 trillion, despite it collecting $3.42 trillion—about half of that—in tax revenue.

What’s more, the amount of M1 money supply—which includes the most liquid and readily available forms of money—was up an unprecedented 67% in December 2020 compared to the same month the previous year.

As Ray Dalio, billionaire founder of Bridgewater, the world’s biggest hedge fund, has said a number of times, “Cash is trash.”

Our Favorite Ways to Get Exposure to Gold

So where does Dalio put his money instead? A look at Bridgewater’s third-quarter filings reveals large positions in physical gold and gold mining companies. At 11.6%, the gold-backed SPDR Gold Trust is the fund’s second-largest position. The fifth-largest position, at 3.4%, is the iShares Gold Trust.

Among the gold producers in Dalio’s portfolio are Newmont, Yamana Gold and Freeport-McMoRan.

Besides the securities already mentioned, we also like to get exposure to gold and precious metal miners via the royalty companies.

Our two favorites that follow the royalty and streaming model, Franco-Nevada and Wheaton Precious Metals, have impressive track records of outperforming bullion and gold miners over multiple time periods, in bull and bear markets.

Below, you can see that Franco significantly beat gold and senior producers during periods when asset prices were rising as well as falling. 

Wheaton similarly performed well over multiple periods. For the one-year, three-year, five-year and 10-year periods, Wheaton crushed not just gold and silver but also miners and the popular VanEck Vectors Gold Miners ETF.

These strong track records have resulted in the companies consistently returning value to shareholders.

As of September 30, Wheaton had an incredible $1.2 billion declared in dividends. Franco, meanwhile, has had 14 straight years of dividend increases, with $1.4 billion paid out since its 2008 initial public offering (IPO).

Both companies are scheduled to report in early March, which I’m eagerly awaiting.

Upcoming GROW Webcast

Speaking of earnings… We’ve already been receiving numerous emails about when to expect the next GROW webcast. There’s now a date in place: February 5 at 7:30am CST. To register for the event, click below.


Gold Market

This week spot gold closed the week at $1,855.61, up $27.16 per ounce, or 1.49%. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week higher by 1.78%. The S&P/TSX Venture Index came in strong up 4.34%. The U.S. Trade-Weighted Dollar fell 0.62%.

Date Event Survey Actual Prior
Jan-17 China Retails Sales YoY 5.5% 4.6% 5.0%
Jan-19 Germany CPI YoY -0.3% -0.3% -0.3%
Jan-19 Germany ZEW Survey Expectation 59.4 61.8 55.0
Jan-19 Germany ZEW Survey Situation -68.3 -66.4 -66.5
Jan-20 Eurozone CPI Core YoY 0.2% 0.2% 0.2%
Jan-21 ECB Main Refinancing Rate 0.000% 0.000% 0.000%
Jan-21 Housing Starts 1560k 1669k 1578k
Jan-21 Initial Jobless Claims 935k 900k 926k
Jan-26 Hong Kong Exports 8.0% 5.6%
Jan-26 Conf. Board Consumer Confidence 89.1 88.6
Jan-27 Durable Good Orders 1.0% 1.0%
Jan-27 FOMC Rate Deision (Upper Bound) 0.25% 0.25%
Jan-28 Germany CPI YoY 0.7% -0.3%
Jan-28 GDP Annualized QoQ 4.4% 33.4%
Jan-28 Initial Jobless Claims 875k 900k
Jan-28 New Home Sales 860k 841k


  • The best performing precious metal for the week was silver, up 2.92%. Global holdings in silver-backed ETFs hit the highest ever on Wednesday, according to Bloomberg calculations. The iShares Silver Trust took in half a billion dollars in inflows on Tuesday, the biggest inflows in seven years. Despite silver dropping more than 4% so far this year, investors are piling into the precious metal.

  • Spot gold rose 1.7% on Wednesday as Joe Biden was sworn in as the 46th U.S. President. Gold is now trading above last week’s high and is finding support above its 200-day moving average. The dollar weakened amid signs that interest rates may remain low for the near future.
  • Anglo Asian Mining shares rose 10% in U.K. trading on Thursday on the news of a ceasefire agreement in Azerbaijan. There had been a military conflict between Armenia, Azerbaijan and Russia over the enclave of Nagorno Karabakh, where Anglo Asian has three contract areas.


  • The worst performing precious metal for the week was palladium, down 1.21% on little market-moving news. Gold and silver were both down sharply Friday morning after U.S. PMI flash readings came in stronger than expected, signaling a strengthening economy.
  • GlobalData estimates global gold production final figures will show a drop of 5.4% in 2020 to 108 million ounces, largely due to pandemic disruptions. The biggest decline is expected out of China of 933,800 ounces lower than 2019.
  • An explosion at a Chinese gold mine on January 10 trapped 22 workers and has killed one, reports Xinhua News. Workers remain trapped in the Hushan Gold Mine in Shandong province and the rescue team warned their efforts face several challenges due to the hard rock.


  • Sibanye Stillwater’s CEO and well-known dealmaker Neal Froneman said he wants to double the size of the South African miner before retiring in two to three years. Froneman grew Sibanye to a market cap of $11.9 billion through mine acquisitions. “M&A is what we are good at. We have created value and we are going to continue to create value in the right way at the right time.” The company is exploring deals in battery metals projects.
  • Eldorado Gold and QMX Gold Corporation announced a friendly acquisition. Eldorado, which owns 17% of QMX, will acquire all remaining outstanding shares of QMX at a 39.5% premium. Following the completion of the agreement, QMX shareholders will own 2.8% of the issued and outstand shares of Eldorado.
  • Gold Fields has hired former Anglo American Platinum chief Chris Griffith as its new CEO as the company hopes to restore its last gold mine in South Africa, the iconic and challenging South Deep mine. Gold Fields shares rose as much as 6.2% in South African trading on the news.  Griffith who left Anglo American Platinum on a high point for the company last year will start in April at Gold Fields. 


  • Billionaire investor and Oaktree Capital Management cofounder Howard Marks questioned gold’s worth in a CNBC interview this week. Marks said “gold’s value is almost like a superstition” since it depends on people believing it’s worth something.
  • Georgette Boele, senior precious metals strategist at ABN AMRO, adjusted her outlook for gold and said its price has peaked. Boele predicts the gold market struggling this year as rising inflation could force the Federal Reserve to tighten monetary policy faster than expected. Improving economic conditions will push nominal yields higher, which would raise real interest rates, Boele added.
  • British Prime Minister Boris Johnson said on Thursday it is still too early to say when the national COVID lockdown in England will end as deaths from the virus keep rising. The U.S. hit a grim milestone of 400,000 COVID deaths this week. Newly sworn in President Joe Biden said another 100,000 Americans could die over the next month as the pandemic will worsen before it improves.


Index Summary

  • The major market indices finished up this week. The Dow Jones Industrial Average gained 0.59%. The S&P 500 Stock Index rose 1.94%, while the Nasdaq Composite climbed 4.19%. The Russell 2000 small capitalization index gained 2.15% this week.
  • The Hang Seng Composite rose 4.59% this week; while Taiwan was up 2.58% and the KOSPI rose 1.77%.
  • The 10-year Treasury bond yield remained essentially flat at 1.085%.

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January 22, 2021

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors