Why should You invest in Gold and Silver?

Last Updated on 31st January 2022 by Jeffrey Camerda

Are you concerned about rising inflation? Are you wondering where to put your money so that it will protect you from rising prices of goods and services?

We have all seen the news reports about how the government is printing more paper currency every day — what does this mean to you as a consumer? It means that the dollars we use each day are worth less than they used to be. This makes our spending power decrease…and inflation increases.

If you look at gold over time, you can see that its value has been going up with inflation. Also, silver has held its own against inflationary pressures.
So what do you need to know before investing in these precious metals? How much have their values increased historically? And finally, which metal is best suited for your needs right now?

What is Inflation?

Inflation is an increase in the prices of goods and services. As an example, let’s say that last Friday (September 22nd 2010), you went out to dinner with some friends, had one glass of wine, then paid cash for gas on Saturday morning when you filled up your car. On Sunday, the price of gas was $3.97 per gallon. This means that gas cost you almost four times more on Saturday ($9.79) than it did on Friday ($2.99). This also happens to many other items such as food, clothing, entertainment, etc.

As we mentioned earlier, increasing inflation leads to decreasing purchasing power. When inflation rises above certain levels, people start to panic and look towards alternative investments. They often turn towards gold and silver because they believe that those two assets won’t lose any value due to inflation. But, are they correct?

The Stock Market & Bonds Have Been Hit Hard

When you hear that the stock market is doing well, it usually means that it’s up 30% since the beginning of the year. But, what does that really tell us?

Let’s take a closer look at the Dow Jones Industrial Average. According to Yahoo Finance, the DJIA closed September 14th 2010 at 12,164.20. That’s up 29.6% since May 2009. Does that mean that stocks are doing great? Not necessarily. We must remember that during the same period, oil went up by 120%, interest rates went down by 0.25% and commodities like corn and soybeans went way up. So while stocks may seem to be doing fine, there are other factors that could affect them negatively.

The truth is that bonds aren’t doing too bad either. Let’s take a look at 10-year Treasury Bond yields. Right now, the average rate is 2.70%. Interest rates have gone down over the past few months but not enough to make a huge difference in the long run. However, what does this tell us? Well, it tells us that even though things might seem OK in terms of the economy and stocks, the future isn’t looking bright.
Many analysts who claim that stocks are “safe” investment vehicles are simply wrong. Sure, stocks can give you high returns over short periods of time, however, over longer periods of time, you’ll end up losing most of your gains. Nowadays, investors tend to focus mainly on equities and mutual funds instead of safe investments like bonds. Why? Because they want to reap higher profits quickly rather than waiting years for their investments to grow. However, the problem lies in the fact that stocks don’t provide adequate protection against inflation.

How Much Has The Economy Grown Over Time?

Now here is something interesting for you. While most Americans think that the economy grew quite nicely over the past 50 years, the truth is that most countries around the world haven’t grown very much at all. Take China, Japan, India, Brazil, Mexico, Turkey, Indonesia, Russia, South Korea, Malaysia, Thailand, Vietnam, Philippines, Argentina, Ukraine, Poland, Romania, Hungary, Bulgaria, Israel, Cuba, Canada, Australia, New Zealand, Belgium, Norway, Netherlands, Sweden, Finland, Germany, Austria, Spain, Ireland, Portugal, Italy, Switzerland, Greece, Trinidad and Tobago, Jamaica, Barbados, Bahamas, Bermuda, Cayman Islands and Malta. These countries combined account for only 1.8% of global economic output!  By contrast, America accounts for 23%!
This shows that although the US economy seems to be growing, most other economies worldwide are barely growing at all. Another reason why people continue to invest into stocks is because they feel that these companies have a good chance at producing big profits in the near future. But again, if you look at the numbers, you’ll find that stocks don’t offer a lot of safety against inflation.

How To Protect Yourself From Rising Inflation

You’ve probably heard the saying, “Buy low and sell high.” This means that you should buy low priced items and sell them high priced items. A popular example of this is buying cheap airline tickets and selling expensive plane tickets.
But, what if you’re just starting out? Do you buy everything new? No. People prefer to purchase older products that already have proven reliability and longevity. For instance, you wouldn’t buy a brand new car unless you absolutely needed to. Instead, you’d go for a reliable used car. Same goes for electronics, furniture, clothes, jewelry, etc.

While this doesn’t guarantee total financial security, it does ensure that you get better quality for your hard earned money.
Here are some tips for protecting yourself from rising inflation:
1) Gold 2) Silver 3) Precious Metals 4) Real Estate 5) Foreclosures 6) Stocks 7) Mutual Funds 8) Bonds
Each of these options offers different benefits. Here are some examples of each type of asset class:

Gold protects against both inflation and deflation. Its value increases with inflation and decreases with deflation.
It is scarce, unlike common resources like water and oil. It takes a tremendous amount of energy to produce. Therefore, it is not environmentally friendly.
Its value is determined by supply and demand. Some experts suggest holding physical gold bullion instead of shares in gold mining companies.

Precious Metals
These include silver, platinum, palladium, rhodium, ruthenium, osmium, iridium, etc. They protect against both inflation and deflation. Their value increases with inflation and decreases with deflation. Most of them are rarer than gold. Their value is dependent upon supply and demand.

Silver protects against both inflation and deflation. Like gold, its value remains very much affected by changes in supply and demand factors, as it is also an industrial metal, unlike gold. Like gold, it is now rare and not easy to mine. Like gold, its value is dependent upon supply and demand.

Real Estate
Land is tangible and valuable. Many people consider real estate to be one of the best investments available today. It tends to appreciate in value over time.
Buying real estate early may require a large initial investment, but its overall return is far greater than stocks.

Foreclosure properties are cheaper than regular ones. They represent excellent bargains because banks no longer want them. Foreclosures are a potential source of income. However, foreclosure property owners face significant tax liabilities.

Stock prices fluctuate based on supply and demand. Because of this, they provide limited protection against inflation.

Mutual Funds
They combine a wide range of securities together to achieve portfolio diversification. Since each individual share represents small amounts of different types of assets, they help reduce risk.

Diversify your assets among several different asset classes. This prevents losses from severe downturns in one particular sector.

Bond prices fall when interest rates rise. Some economists believe that bonds actually contribute to inflation. However, other economists argue that bonds protect against inflation.

Which Metal Is Best Suited For Your Needs Right Now?
Today, we learned why inflation poses a threat to our standard of living and also how to protect ourselves from rising inflation. Since everyone wants to maximize their savings, we must learn how to properly invest our money. We hope that you found this article helpful. Please leave comments below.

Jeffrey Camerda

Dr. Jeffery Camerda, PhD, is a financial planner who specializes in wealth management and retirement planning.With a PhD in Economics and Financial Planning, Jeffery represents the highest level of financial planning expertise and achievement in the USAIn addition to preparing you for a career in financial planning, a PhD in economics and finance also prepares you for academic pursuits, such as becoming a university professor in teaching or doing research.Here at the Wealth Builder, our financial advisory company was founded in 2007 and services all across the USA with over 16 years of expertise.In order to provide the finest advice and services, we pay close attention to the specific financial circumstances and requirements of each client.In order to guarantee that our clients don't get a sales pitch for insurance or investments, as well as a lack of conflict of interest from a prospective commission-bearing corporations, Jeffery focuses on fee-based services. Financial planning for wealth managers, financial well-being workshops, and personal financial planning packages are all part of the company's offering.Jeffrey Camarda, PhD, CFA, EA is also the founder of the Family Wealth Education Institute, is a member of the Financial Planning Association and serves as the Chairman of Camarda Wealth Advisory Group

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