Introduction
Gold has been a safe-haven asset for years, especially during inflationary periods. Its tangible value and limited supply have made it a popular choice for smart investors looking to protect their hard-earned cash. But can gold really save your money from the cash-hungry inflation monster?
In the gold vs inflation showdown, we’ll see if gold will prove to be the ultimate investment safeguard.
What is inflation?
Inflation is when the price of services and goods start going up over a period of time across a whole economy. In a nutshell, this means that your money starts losing value and can buy you less than it could before.
For example, if your favorite juice costs $2 today, after a year the same juice can become $2.50 all thanks to pesky inflation.
To measure inflation, economists commonly use a consumer price index (CPI). This number tracks the average prices a household typically pays for food, bills, housing, and other essentials. It’s a simple but effective way of tracking the cost of living during economic turmoil.
Cause of inflation
Okay, everything costs more now, but how did we get to this point? Inflation has only one cause: excessive money supply.
Central banks, such as the Federal Reserve (Fed) and the European Central Bank (ECB), play a crucial role in managing this supply. However, when the money supply coming from these establishments outpaces the economic growth, inflation happens.
While there is an optimal money supply level, central banks often struggle to achieve this balance. This mismanagement of monetary policy often leads to economic turmoil and has resulted in historically high debt and inflation levels in major economies.
Banks are playing financial roulette, and the economy is their losing streak. That’s why smart investors are cashing in on all the chaos by investing in gold. Those wise enough to invest in this precious metal are well-positioned to weather the storm and even make a profit.
The impact of inflation
Imagine inflation as a hungry monster that eats up all your money, savings, and salary alike.
While smaller rates of inflation are considered normal, higher rates can destabilize even the sturdiest of economies. Once inflation starts rising, here is what you can expect:
- Increased cost of necessities: Inflation raises the cost of food, housing, and other essentials.
- Reduced value of money: Rising prices reduce the purchasing power of your money.
- Economic uncertainty: Inflation creates economic uncertainty, leading to reduced consumer and business spending.
- Higher borrowing costs: Banks raise interest rates, increasing borrowing costs.
- Erosion of savings: Inflation reduces the real value of your savings, reducing them to pretty much nothing.
- Disproportionate impact: Lower-income households are more adversely affected by inflation.
- Increased debt burden: Variable-rate debts become more burdensome as inflation rises.
Inflation can quickly become out of control. That’s why you need to take action to preserve the purchasing power of your cash. On the bright side, you can do so by making smart investments, like buying gold.
Gold vs inflation: Is gold a good investment during inflation?
The current economic climate, rising inflation, and uncertainty have reignited the interest in traditional safe-haven assets, like gold.
Gold is an amazing investment during inflation. It has a track record like no other precious metal. As an asset, it has historically performed excellently during periods of high inflation and has been an effective way to safeguard your hard-earned cash from economic turmoil.
After all, there is a reason central banks use gold to hedge the wealth of their countries, and billionaires to hedge their savings. Unlike paper-denominated currencies, physical gold has been able to preserve wealth throughout thousands of generations.
If history has taught us one thing, it’s that if you want a secure hedge against inflation - gold is the way to go.
What are the benefits of buying gold?
Gold is having its shining comeback nowadays. According to the World Gold Council, the demand for gold from banks, investors, jewelers, and tech companies is growing at a staggering rate. The global demand has increased 28% year over year!
These industries know that it’s time to secure their money, and they aren’t losing any time.
In general, buying gold is a great way to preserve the purchasing power of your money. But there are even more compelling reasons why you should consider adding gold to your investment mix:
Proven hedge against inflation
In order for an asset to be considered a hedge, it needs to increase in value at the same rate (or higher), than the rate of inflation. Historically, gold has continually proven to us the amazing ability to hold its value and even increase in price.
This precious metal has shown remarkable growth over the last twenty-four years, appreciating by over 800%. Its value has consistently soared during periods of economic turbulence and increased industrial demand.
For example, its price has skyrocketed from roughly $300 per ounce in 2000 to over $2,400 per ounce in 2024, effectively shielding investors from the erosive effects of inflation.
Usually, as the prices of goods and services rise during inflation, the value of cash tends to decline. However, since gold can’t be as easily printed or diluted like regular money, it manages to retain its intrinsic worth.
Finite resource
Unlike paper bills, you can’t simply print more gold. This is one of the main reasons why this asset is able to hold its value so well in times of high inflation. The finite and tangible nature of gold makes it a more reliable investment than most.
Gold is in limited supply, so as the demand for it rises, so will the price. That’s why it’s a good idea to invest sooner rather than later.
Physical ownership
One of the best things about gold is that you can physically own it. Unlike stocks or bonds, gold’s tangible beauty is something you can see and touch. Whether you prefer the elegance of coins, the purity of bars, or the allure of jewelry, gold provides a unique ownership experience.
Physically owning your assets also provides you with a sense of control and security. Plus, by having gold in your possession, you have an asset that isn’t subject to the same risk as some others. After all, no one can hack into your gold bars.
If you don’t hold it, you don’t own it!
Portfolio diversification
When it comes to investing, don’t put all your eggs in one basket. Any investor you ask will tell you that spreading your money across different investments can help protect you from losses. That’s why gold is an excellent investment. While other investments go down, gold typically goes up.
By devoting a portion of your investment portfolio to gold, you’ll have a more diverse mix. A diversified investment portfolio is better equipped to withstand a variety of economic conditions.
Most experts recommend keeping between 5 to 10% allocation of gold within your investment portfolio.
High return rate
Take a look around. The current geopolitical landscape is full of risks, and it’s been that way for years. Whether it’s the war between Russia and Ukraine, the Israeli-Palestinian conflict, the cost-of-living crisis, natural disasters, or pandemics, we are often on the brink of economic disaster.
Since gold has the potential to outperform all the other asset classes, more and more people are rushing to buy. It’s simply the perfect safe-haven asset for your money thanks to its high return rates!
The great inflation of the 1970s serves us as a prime example. As inflation soared from 5.48% to 13.57% in the 80s, businesses and consumers faced financial hardship. But while everything else was in shambles, data shows that gold prices soared from $35 to $850 per ounce during the same period. At the end of the 1980s, gold yielded a staggering return rate of 2,200%.
Gold has proven to us time after time that it performs exceptionally during times of inflation and economic uncertainty:
Global Financial Crisis
- Initial price: $700 per ounce
- Final price: $1,900 per ounce
- Price increase: 171%
- Return rate: 170%
2000s Bull Market
- Initial price: $275 per ounce
- Final price: $1,900 per ounce
- Price increase: 591%
- Return rate: 590%
1970s Bull Market
- Initial price: $35 per ounce
- Final price: $800 per ounce
- Price increase: 2,186%
- Return rate: 2,200%
As you can see, gold has an amazing return rate. So, no matter what the future holds, you’ll be able to get back more than you invested!
Hard asset
In times like nowadays, when the air is filled with economic uncertainty and market turbulence, investing in gold is a must! Gold is a hard, safe-haven asset that is widely perceived as a reliable store of value. This unique characteristic makes it incredibly valuable in times when other assets are experiencing downturns or volatility.
Does inflation devalue gold?
No, inflation doesn’t devalue gold. It’s actually quite the contrary. Gold is used as a hedge against inflation. So, when inflation rises and the purchasing power of a currency starts decreasing, investors turn to safe-haven assets like gold to preserve the value of their wealth.
This increased demand can drive the price of gold quite high. Thus, gold is an excellent safeguard against inflation rather than something that loses its value because of it.
Is now a good time to buy gold?
Yes! It’s the perfect time to buy gold! If you want to protect your money and save your wealth from inflation, history has shown us that it’s worth investing sooner rather than later.
We live in a time when prices keep rising, cost-of-living is through the roof, wars are raging all over the world, and economic uncertainty is in the air. So, the best thing you can do right now is to invest in physical gold.
Not only will you protect your hard-earned cash at the moment, but you’ll also be financially secure no matter what happens in the future. You’ll have mitigated a variety of potential risks and enhanced your overall investment returns.
Remember: Gold is a long-term investment, which means that no matter when you buy it, there is a high chance you'll have a high return rate later in the future.
The Future of Gold
Maintaining an average annual growth rate of approximately 10%, gold's price could potentially climb to around $12,000 per ounce by 2036 and even $20,000 per ounce by 2048.
Not only has history shown us how resilient gold is, but these projections also continue to solidify gold’s role as a smart investment choice for the future. Physical gold is the perfect choice for investors aiming for long-term stability and growth in their portfolios.
As Winston Churchill once said: “Those that fail to learn from history are doomed to repeat it.” So, instead of waiting this time and missing your shot at investing in gold, take it now!
Final words
So, who wins the battle in the gold vs inflation? Gold, of course!
Gold has proven itself as an effective hedge against rapidly rising prices and times of economic uncertainty. It’s a simple way to preserve the purchasing power of your cash and keep your savings secure from the inflation monster.
If you are somebody looking to protect their wealth against economic downturns, secure their future peace, and ensure you’ll always have hidden riches, then investing in gold is the way to go.
Gold isn’t a finite resource, so don’t waste any time, it’s better to invest sooner than later. Either way, you’ll always have a return on this tangible investment.
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