Gold bullion is something most people associate with wealth and governments, however gold can assist almost anybody financially and has done so for thousands of years. Keeping large gold bars stacked away may still be for the realm of central banks and governments, however keeping small gold bars for personal savings is a great way to protect future savings.
How can gold benefit your regular savings? There are a few ways. Firstly is the historic aspect, but to understand this, you must also understand the current economic situation we are in, which I will explain below.
Until the 1960’s, the world ran on what was known as a Gold Standard, in Britain however, this was known as the Sterling, but the two intertwined. The Gold Standard means that the US Dollar was pegged to be the value of a set weight in gold, with the sterling standard, lower denominations were also fixed to a fixed weight of silver. The benefit of this system was that money could not be simply created, and hence the gold or silver had to be in existence in order for the money to be available. This system encouraged savings and safe investments, and due to the rarity of the metals, also encouraged higher interest rates, creating a society which did not depend on credit for growth, but rather capital savings and innovation.
All that changed by the 1970’s as the world moved into what is known as the Fiat Currency period, the system on which we operate today. Fiat currency means the money in circulation is backed by nothing other than the debt owed by the individual who first borrowed it, hence the creation of all money in the system today comes from debt. This may seem extreme, however there is a complex system behind it which keeps it going, mainly the multiple levels of reinvestment of each debt, which eventually encases the debt not only on a local level, but spreads it globally.
Profits are made by investors whom are paid a percentage of the interest charges repaid by the initial debtor for the life of the loan, however if that individual, company or organisation becomes insolvent / bankrupt, the ripple effect of this loss of income travels through multiple investments globally. While the system can cope with small losses every so often, when a financial crisis hits such as the extreme mortgage defaults seen during the recent American global financial crisis, the system heads towards an extreme state of uncertainty, until all those levels of debt have been tracked down and purged from the system, thereby creating the state for more investments following. The period of which the ripple effect of a large economic collapse occurs can take up to a year to become apparent, and investor confidence may take upto 5 to 10 years to return to previous levels.
The main reason gold is such a good option in modern times, is simply because it is not attached to the financial system directly any more. This means that by buying gold bullion today, the value of the gold remains the same, while the value of fiat currency is constantly inflating as new debt is created. Gold holds its true value, so if we see inflation rates of around 70% over a decade, gold often follows this trend and sometimes even excels further. If you were to keep $1000 in cash for a decade where the average inflation rate is 7%, that means at the end of that decade your $1000 would be worth only what $300 is worth today.
When you hold gold however, you hold something which has a huge demand globally which is practically insatiable for investors, central banks, governments, industry and technology. This means people are constantly willing to pay to obtain more gold, and hence the value of gold remains strong, adapting as inflation rises to keep up with demand, and hence gaining value as the value of currency drops. By investing in $1000 of gold, by the end of the decade where your cash would devalue by 70%, normally gold will not devalue at all, and will be worth the same amount as it was the first time you purchased.
Going by this method, $1000 of gold today will likely be worth $1700 in a decades time if the inflation rate was around 7%, so there are no losses incurred. Swapping your cash for gold provides a far more secure method of saving than keeping cash alone, and because it’s value is more closely pegged to inflation than regular bank deposit interest returns, you usually obtain a superior increase in value over the long term compared to any other investment method.