Gold is considered a significant asset as it offers protection against both inflation and deflation. However, few investors are able to understand its significance. As an anti-paper currency, central bankers have identify it as an insurance against the detrimental situation of the dollar and other global currencies.. The rise and fall in the value of paper money is inevitable just as death and taxes.
There is a difference between gold and silver. Gold in the minds of most people can easily symbolize as a currency but normally people see silver as an industrial metal. Silver is more volatile as an asset and is also dependent on the industrial economic climate. Generally, gold is the better option when it comes to long-term insurance policy investment as compared to silver.
For the experienced investor they are strategies that can be used to take advantage of this perception of silver. As a rule its best to have both gold and silver in your insurance policy.
Some central bankers have even remarked that they want inflation to rise, which means that the purchasing power of paper money will fall. Despite reports from official inflation statistics that inflation is low, real-world prices are rising quickly. In a way, these central bankers are not successful in stimulating economic growth but are contributing to the decline of the value of paper currencies, and the value of assets that are dominated in paper currencies.
To have a clearer view, there are two types of inflation that needs to be considered. First, the central banks are building a type of inflation which relates to the prices of products and services. The other type of inflation is happening in the price of financial assets like stocks and bonds, high-end real estate, art and collectibles.
In reality, it is not the real value of the assets that is increasing rather it is just the nominal purchasing power of the paper currencies used to buy them that is declining. This may have been in mind of economist Irving Fisher on his ‘money illusion’ back in the 1920s.
The printing of trillions of dollars of cheap debt by central banks around the world has contributed to the decline in paper currencies. We may not know it, but the cycle of printing money could be over. It may not be today but it will happen at some point in the near future. The value of any asset denominated in a paper currency will collapse and could lead to a massive deflationary bust, which is what we witnessed to a small scale in 2008-2009 financial crisis.
The up side during this crisis was that the value of gold did not collapse, we saw a flight to gold and silver as a protection of wealth and capital, but for most it was to late a time to buy as the price was going beyond their reach. In case of another financial crisis, the value of gold will increased further. Investors rush to the assets they think of as been safe such as Treasury bills, gold and silver when they are less assured of the financial system’s outlook.
The thing hear is to be holding gold and silver before the need arises, this way you can be assured of holding and asset that will increase in value and that you will have access to your wealth after the event to capitalise on any investment or business opportunities that will found.