Silver/Gold as inflation hedge?

I own physical silver and gold simply as a way to diversify my investment portfolio but they are often touted as a hedge against inflation, which I don't quite understand.

If someone could explain that to me, I would be most appreciative.

For example, are metal values supposed to move in tandem with inflation? Assuming so, would I sell my metals at the height of inflation to convert to inflated-value dollars? Since my metal holdings are limited, it would seem my ability to hedge long-term inflation would be limited as well, to the point of being relatively insignificant.

 

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I could try.
As the value of the dollar falls as compared to other currency (euro), The price of the commodity may not change in the other currency but in dollars it soars. thus maintaining your moneys value.
In other words, if the commodity in question is valued at 100 dollars and 100 euro per ounce today, and the dollar looses half of its value at some time in the future, it now cost 200 dollars per ounce, but in euros it will still be worth 100. all while 100 dollars cash would now only buy only 1/2 an ounce. and the 200 dollars could be converted to the 100 euros.
The value of your dollars is maintained.

 

That is true. No one should expect 5-10% PM investment to counteract the effects of any significant inflation on the rest of their 90-95% investment. It does help pacify the mind though to think one has hard assets. Similar to people who buy a roomful of canned and bottled goods. If the expected increase in inflation doesn't come soon, they will have a limited diet as they must rotate their inventory. Just my opinion, as things stand, it is hard to eliminate deflation in favor of inflation, but in reality, no one can know for sure.

Jim

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I agree. :thumb:

 

I'll admit that much of my attachment to gold and silver is simply an emotional feeling of security that comes with owning them. If I were concerned about inflation, I would go with assets that actually track inflation, such as real estate, large company stock, oil, wheat, and collectibles such as historic art, rare coins, and antique guns. Historically, gold and silver, haven't always tracked inflation. Companies who sell gold tend to point only to the periods in which gold tracked, ignoring the periods in which it didn't track.

 

I think the real value of gold and silver will be realized when the dollar is totally destroyed, that is when the US defaults or prints it's way out of debt, and a NEW DOLLAR is created. Old paper dollars will be worthless, perhaps coins will retain their value because in countries that have had hyperinflation the coins were not devalued (Zimbabwe).

 

This is an important point that people often overlook. If anyone REALLY thought the dollar would be destroyed, they wouldn't buy gold and silver which may be confiscated or made illegal under such circumstances. They would obtain an equivalent value of, say, nickels and hide them. Small change has typically not been devalued in countries that experience hyperinflation or implement a new currency since the value isn't worth the effort. So the best way to go is to store up a couple of tons of pocket change if that is what you believe will happen.

 

If the dollar is destroyed (fails), who do you think will be doing the confiscating? At that point the government will be totally powerless. Anarchy will be what you will have to worry about and protecting your bullion from the mobs. The government could make it illegal to own bullion but I don't think many people will give a Sh_t what they do by that point.

 

I'd like to point out that the value of PMs don't really move, but rather the buying power of FIAT currency goes up and down, meaning you can buy more or less PMs with the same FIAT currency from day to day.

Also, I don't think it is out of the question that the govt could confiscate PMs in a last ditch effort to force people back into currency.
They won't wait for the dollar to fail, they will do it in their death throes, before all is lost.

 

Personally, I don't think there is even a 1 in 1,000 chance that this will happen. I restrict my investment activities to scenarios that are likely to happen. Problems with the dollar are far more likely to lead to stronger government in an advanced society, not the opposite. I know there is a contingent of survivalists out there spending their lives preparing to survive Armageddon in road warrior fashion, but I don't count myself among them. So I invest with the idea of making my life better in the future than it is now.

 

This is another misconception that is repeated so often that some folks start to believe it. Over the past decade, gold has risen in price by a factor of 5+. This would imply that prices are five times higher now than a decade before. This is obviously untrue. In the early 80s and into the 90s, gold fell in price by a factor of 3, but prices did not decrease by 67% as this would imply. Instead, they continued to rise but at a lower pace than in the 70s. Gold and silver are commodities and their prices behave like commodities, subject to supply and demand. Gold and silver were money in the past, and could be money, but they aren't money.

 

I don't think that we are going to fall into anarchy or that we are headed for a Mad Max scenario.
However, I do see very serious things happening that law enforcement will have far less control over than we would like...
Food riots, gas riots, increases in crime related to theft of food/gas that are hard to fathom, curfews, etc...
We are headed for a lot of strife IMO, but not 'armageddon' or 'Thunderdome'.

 

I had never heard of this. Do you happen to have a link where I could read more about coins retaining their value during hyperinflation, please? Thanks.

 

Even better, I remember reading that they often will , After reissuing new money at some value of lets say 1 new for 100 old they declare that the old coins are still worth face value in new money. This increases the coins value by 100!

 

That is definately interesting...
Was Zimbabwie the only place to do that, or is it common?
I know when Mexico did the new pesos, they issued new coins as well, so it doesn't hold true 100%.
What is the ratio of old coinage kept vs new coinage in all the hyperinflation situations??
How did it work in Germany? Yugoslavia? etc...

 

In think it holds only for small change, under 1 dollar, 1 peso or whatever, not the 1000 dollar coins.

 

I would agree with that

I strongly agree with this.

As an aside, somewhat pertinent to this thread. When the market started today, I had about a 1-2% increase in my portfolios, mainly based on the up price of PM and my rare earth stock. When the Dow was down about 20, I noted they were back to yesterday's value, but now with the Dow down 142, the value is still the same. As the Dow came down, my PM increasing supported the portfolio, and then my puts on the S&P ( SPY) kicked in and helping out. I don't like my other stocks being down, but it struck me that for today at least I was well balanced

Jim






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Howdy folks,

A couple of things. First as an inflation hedge, the value of the dollar has dropped by 94% since 1913 when the Federal Reserve began.

I've read that in ancient Rome you could buy a very nice toga and sandals for an ounce of gold; during the 1920's you could buy a nice suit of clothes for an ounce of gold; and, today at $1400 an ounce you can STILL buy a nice suit of clothes.

More personal is that when I was growing up in Lansing MI, I could take a quarter to the grocery store and buy a loaf of bread (circa 1960). Well, at melt value of $5.00 I can still take that same 1960 washington quarter and buy a loaf of bread.

That my friend is why gold is considered an inflation hedge - store of value over time.

Now as far as the dollar going to zero and us seeing finanical meltdown and anarchy, I don't give it much of a chance. I'd say around 10% probability. I'd give them about the same probability of fixing the economy and I'd give it an 80% chance of us muddling along in a stagflation scenario for another 10 -15 years. You can quibble about the exact numbers, but you get my point. I see the chances of hyper inflation or financial meltdown as very slim. BUT, there is a chance that it could happen and it's greater than zero. Well, now the second question is how bad would it be? Methinks it would be bloody ghastly and therefore, having a little safeguarding and hedging against it is prudent.

It's a risk/reward matrix trick where you figure the chances of some various events coming to pass, and the costs and benefits associated with both it happening and not happening. Then you optimize your choices. In this case, the greatest probability is another 10-15 years of stagflation. However, I don't see the costs of such as being enormous and so I don't need to take greater preventative measures. However, the cost of a financial meltdown and/or hyper inflation, while having a slim possibility of occurring, are so terribly dire that not taking some preventative measures is silly and borders on the insane.

That doesn't mean you have to move to the country, build an off-grid cabin and revert to living off the land. In my case, I have no debt, house paid, yard enough for a garden, close neighborhood and community ties, current resume' and constantly upgraded job skills (and I'm retired), having some stash, diversifying both your portfolio and wealth, etc.

peace,

rono

 

Congratulations, this is one of the best investments portfolios. Invest in home, life, health, and brain. I applaud you.

Jim

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Don't want to quote your entire post but I could not agree more, well stated!

Regards,

Bluesboy65