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Fighting Inflation Risk with Precious Metals

Inflation, Precious Metals

Current State of Inflation

Stubbornly high inflation is outpacing wage growth, eroding consumer purchasing power, and raising expectations that the Fed may have to prolong its current high interest rates to get prices under control. This risks further squeezing household budgets and potentially tipping the economy into a recession. All these factors are fueling significant anxiety both in the United States and globally.

The Ipsos “What Worries the World” survey from April 2024 found that inflation remained the top global concern for an astonishing 25 consecutive months. In the U.S., inflation concerns have continued to spike, with 45% of respondents citing it as their biggest worry. Inflation beats worries over poverty, crime, unemployment, war, and political corruption.

Recently, the Federal Reserve decided to keep interest rates the same, even though efforts to reduce inflation have stalled. The current sentiment is that rates will be higher for longer than anticipated. This decision highlights the need for reliable ways for investors to protect their wealth from rising prices.

The good news is there’s a way to safeguard your wealth: investing in precious metals like gold and silver. These function as a shield against inflation, eating away at the value of your hard-earned dollars.

What’s Driving High Inflation?

Inflation is a concern to investors because it erodes the purchasing power of savings and investments, putting financial security at risk.
Inflation happens when prices for goods and services go up over time. Many factors cause inflation, including:

  • Supply chain problems
  • High demand for products
  • A tight labor market
  • Rising housing costs
  • Increased energy costs

Government policies that involve creating huge sums of money—such as the $5 trillion spent on pandemic relief—have also driven the surge in inflation.

The Federal Reserve announced it would keep interest rates steady to help stabilize the economy. However, this can also lead to higher inflation because lower interest rates make borrowing and spending easier.

The Role of Fiat Money

At the heart of inflationary pressures lies the nature of fiat money. Unlike precious metals, fiat currencies like the U.S. dollar are not backed by any tangible asset. Instead, fiat money derives its value from government decree.

When the U.S. abandoned the gold standard, it enabled the government to print more money to finance spending. This increase in money supply devalued the currency, leading to inflation as prices of goods and services rose.

In contrast, precious metals like gold and silver have intrinsic value and limited supply. This makes them a stable store of wealth during economic turmoil. Their scarcity prevents devaluation, safeguarding against inflation.

Precious Metals Protect Investors Against Inflationary Risk

Investing in precious metals (gold and silver bullion bars and coins) can serve as a powerful hedge against inflation for several reasons:
First, these commodities have intrinsic value and scarcity, unlike fiat currencies that governments create at will. As inflation erodes the purchasing power of paper money, historically, the value of precious metals tends to rise, preserving the real wealth of investors.

Additionally, many investors gravitate toward the safety of gold and silver during economic instability. This increased demand often fuels an upswing in the price of precious metals.
Investors are not the only ones buying gold and silver. Central banks of countries worldwide are also adding to their reserves.

According to the World Gold Council, during the first quarter of 2024, the People’s Bank of China added 27.06 tons of gold to its reserves, marking its 17th consecutive month of increases. The Reserve Bank of India increased its reserves by 19 tons, while the Central Bank of Turkey was the largest gold buyer in the first quarter of 2024, accumulating 30.12 tons.

What the Experts Say

American billionaire and hedge fund manager Ray Dalio bluntly states: “If you don’t own gold, there is no sensible reason other than you don’t know history or you don’t know the economics of it.”
He calls gold the “alternative money” that investors should hold because it diversifies their portfolios.
Dalio is not alone in his belief that gold is critical to wealth protection.

Private portfolio manager Phil George says gold is currently an especially attractive hedge against inflation. His clients are selling dollars to buy gold, which they see as “the ultimate store of value.”

And Robert Kiyosaki (author of Rich Dad Poor Dad) strongly advocates gold ownership as protection against a possible U.S. debt crisis: “If the US defaults on its debt, many people will wish they’d saved some of the money known as gold. Because just like it’s happened many times over the last 6,000 years, people will turn to it as the repository of value again.”

Let CMI Gold & Silver Help Protect Your Portfolio Against Rising Inflation

CMI Gold & Silver understands the enduring value of gold and silver as a proven hedge against inflation. Our non-commissioned brokers will guide you in creating a secure investment strategy to buy, sell, and trade precious metals. Call us today to learn more.

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