Even With Inflation Rearing It’s Ugly Head, There’s No Need to “Panic Buy” Precious Metals
Higher inflation means higher prices for everyone. Over the last three years, we’ve witnessed inflation that is no longer graded against the Fed’s target of 2% but rather on how much better it is compared to the previous bad results. This is how a monstrous 4% inflation is spun as positive news by today’s corporate media.
They make a living by essentially telling us things are a little less awful than they were last month.
Unfortunately, new data indicates we should expect inflation to skyrocket once again. It’s anticipated to go from less-bad than before to far-worse than anyone can accept. This shift is even more unnerving when we consider the Fed has raised rates all but one cycle since their so-called war on inflation began. High rates combined with high inflation mean the worst-case-scenario may be upon us.
The only ones smiling about it all are those who are holding physical precious metals. The continuously rising rates should have tanked prices. Instead, both gold and silver have remained resilient despite these rate hikes and an inflated U.S. Dollar. But it seems reasonable to expect the coming inflationary woes to do what they’ve done in the past, which is to push precious metals values higher.
One of the reasons for higher demand recently is the desire for higher financial ground. According to Kinesis Money, precious metals are the “hedge” against inflation:
Why does gold hedge against inflation? That’s a question for which there is no scientifically proven explanation beyond statistical observations, like the chart above, which confirms that the gold price and inflation are highly positively correlated over long periods of time.
The principles of economics can be used to explain the correlation between gold and inflation. Over extremely long periods of time – as in centuries – the increase in the supply of gold annually roughly is equal to the long-term growth in global economic output.
Over a time period of many centuries, both the supply of gold and the rate of economic output increased at approximately 3% annually. Issuing currency in varying units of denomination enables the use of gold as a reserve asset against the issuance of that currency by creating “fungibility” of the central bank gold that backs the currency issued by that bank.
Constraining the growth in the supply of currency to the amount of gold that is produced and can be used to back currency, limits the ability of central banks and governments to “oversupply” currency.
However, since 1971, when the gold-backing of the U.S. dollar as the global reserve currency was completely removed, there have not been any real constraints on currency creation.
Since 1971, periods of price inflation have become problematic and it is during those periods when the price of gold not only has served as an inflation hedge but also has outperformed the rate of inflation.
Because the rate of return on gold has lagged behind the rate of inflation over the last couple of years, it suggests that investing in gold now offers an opportunity to use gold, and silver, as both an inflation hedge and a total rate of return investment asset.
Genesis Gold Group has chosen not to highlight the coming inflation as evidence of the need to buy gold and silver today. That’s not to say they don’t want people to rollover or transfer their retirement accounts into a self-directed IRA backed by physical precious metals. They have believed for years that this is the right approach to wealth protection. But what they don’t want Americans to do is to panic-buy or make moves based on projected higher prices.
“Some might try to fault us for not playing on rising inflation as the predicate to move money, but we operate with our eyes on the long-term,” said Rose. “Inflation is obviously a major concern, but we want customers to know all of their options before making such decisions.”
The countercyclical relationship precious metals have with inflation is based on the comparison of the finite, namely gold and silver supplies, with the infinite of continuous money printing. Inflation reduces the value of the U.S. Dollar which means more money has to be printed and distributed to compensate. When that happens, precious metals values generally go up.
But there’s another reason Genesis Gold Group doesn’t encourage their customers to try to ride the wave of increasing values through higher inflation. They view precious metals as the best way to store value, protecting wealth in the short-term and expanding it in the long-term.
This aligns with the company’s Christian values; it’s better to be good stewards of our blessings than to act frivolously.
“It’s important that we understand our customers’ goals so we can best craft their purchases for maximum wealth protection,” Rose said. “Like we often say, you don’t wait to buy gold. You buy gold and wait.”