In this video we examine if gold is an effective hedge against inflation.

We take into account the last 50 years and assess the hedging properties of gold in US Dollar terms.

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Is Silver An Effective Hedge Against Inflation?
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Today is Tuesday 22nd October 2019 and today we are looking at gold ‘s effectiveness as a hedge against inflation.

Now before we continue, we think its important to state why we quote 50 years.

There are a number of reasons:
1. It’s a long enough time period to make an objective assessment

2. Most of us purchasing gold are likely to do so with the intent of selling it again within a 50 year period e.g. very rarely do people keep such investments for longer periods of time unless they wish to hand them down to their children and grandchildren and even if you start buying early and say aged 20 you are likely to want to liquidate your investment during retirement from age 65 – 70 while you still have reasonable health

3. Going back 50 years enable us to capture the gold market whilst virtually outside save a couple of years of the gold standard period which ended on 15th August 1971 – as up until then we did not have freely floating exchange and US dollar value rates – as the latter was pegged to gold.

So, let’s do similarly what we did with silver and that is look at the gold price from 1970 until today in 5 yearly tranches:

16th Jan 1970 - $34
18th Oct 1974 - $155 - +355%
12th Oct 1979 - $387 - +149%
16th Oct 1984 - $339 - -12%
17th Oct 1989 - $366 - +8%
21st Oct 1994 - $390 - +7%
13th Oct 1999 - $320 - -18%
14th Oct 2004 - $415 - +30%
16th Oct 2009 - $1047 - +152%
17th Oct 2014 - $1238 - +18%
18th Oct 2019 - $1487 - +20%

Over the past 50 years and talking into account 10 5 year periods, we can see that gold has risen in US dollar terms on 8 out of the 10 occasions and fallen just twice.

That is all very well and good but what about allowing for inflation? Rising in dollar terms means nothing until we take inflation into account.

If you purchased at the high on 6th September 2011 at $1896 allowing for inflation, to break even gold needs to stand today at $2164.

That said, apart from that small time period Gold has proven to be a most effective hedge against inflation.

That said, what silver does have in its favour during a time of recession and zero interest rates is that once investors catch on to gold being the go to asset class and its price rises significantly, silver will at first be dragged up with it and then, because of the relatively small size of the market in percentage terms will surpass gold and it will be at that time we too will cash out or use our silver for alternative asset purchases.

It’s also important to add that this presentation is based on the US Dollar. In a number of other currencies, this situation looks different in terms of gold, because even allowing for the peaks in 2011 a number of currencies have devalued so much since then e.g. sterling, then gold today is close to or has been higher in price but (not allowing for inflation) for example in 2011 gold peaked at £1177 today it stands at £1151 but recently touched £1278. Not quite an inflation hedge but also not the significant loss experienced by those who purchased it in dollars.

Finally, for Inner sanctum members we are putting on our website this week a host of free eBooks, courses and videos ranging from The power of positive thinking 2 to Modern Vlogging, how to make money on Amazon, How to set up your own Facebook group, Unshakeable Confidence eBook, how to overcome anxiety and many more – all free if you are a bronze or silver member so please watch out for these.

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