Insurance Against Inflation and Deflation

Despite crisis after crisis, gold and silver prices remain relatively stable, puzzling many investors. Between Greece, Ukraine, Brexit, the Chinese market crash, Italian referendum and Russia, some wondered why precious metal values did not soar. But, a better question must be posed.

Why did gold and silver prices not decrease further?

Recall oil prices dropping greater than 75% during 2014-2016 and every major commodity suffering major dollar declines. Gold and silver prices have scarcely moved comparatively.

Deflation, the current economic condition, bears negative connotations regarding gold and silver. If deflation continues, a further drop in gold and silver’s dollar price would be unsurprising, though we already likely rest near the bottom. Negative connotations aside, gold performs well during deflation and protects purchasing power.

Gold and silver preserve wealth when measured in real terms. As other prices drop, gold goes down as well, but not as much. A silver dollar today buys approximately 15 gallons of gasoline. Five years ago, ten years ago, fifty years ago a silver dollar still bought 15 gallons of gasoline. “Wealth insurance,” allocating funds into physical gold and silver, protects purchasing power.

In contrast, governments and central banks cannot tolerate deflation. They do everything in their power to create inflation. History indicates central banks created inflation many times. More specifically, this occurred in 1933 in the United States. Our national government’s fixed price of gold was $20.67 per ounce when extreme deflation began. Inflation was manufactured simply by adjusting the gold price to $35.00 per ounce.  Goods and services had to catch up in price. By cheapening the dollar against gold, inflation occurred and deflation ended.

With current world conditions (debt, insolvency, Europe, China, etc.), one can claim inflation at some point is inevitable. Countless economists agree that individuals should have at least 10% of assets in tangible gold and silver to protect themselves against both inflation and deflation. This percentage should protect portfolios in both economic conditions.

As one of the only assets performing well in both economic conditions, gold and silver belong in every portfolio. Consider how far funds would go if gas jumped to $8 per gallon or eggs to $10 per carton. During such an inflationary circumstance, precious metals should be valued higher as well.By including gold and silver in clients’ wealth management strategy, you protect them against both inflation and deflation.

Every financial advisor needs to knowledgeably navigate precious metal purchasing. National Gold Consultants provides personal support and a variety of tools to equip financial advisors in responsible wealth protection.