Don't just hold onto it

People often ask 'how much gold should I have?' The easy answer is - enough is never enough. The conventional answer from people such as financial advisers is that everyone should devote 5%-10% of their portfolio to gold. In times of crisis gold's innate qualities - in particular its lack of counter-party risks - stand out. If financial crises happen - and they seem to be happening with greater frequency - then gold is correctly seen as a safe haven; people will flock to gold, the price will rise as demand grows and supply can't keep up. That's what has been happening the past couple of years.

Research from the global asset manager Sprott suggests there have been seven 'crisis periods' since 2007. The Dollar gold price has risen on average by almost 21% for those seven incidents, against a drop of more than 8% in the S & P 500 total return index, and a rise of just over 5% in US Treasuries. In crises gold does better, it seems, than other investments.

Living with crisis

Crises have different skins. Some, such as the global Covid-19 pandemic, come in full multi-colored costumes. Others are much quieter. Inflation, a rise in prices, is a deceptive crisis.

The recent upsurge in prices - more than 9% in the US and above 11% in the UK and the European Union (EU) in 2022 - dealt a shock to consumers and central banks. We're still living with the relatively high interest rates central banks imposed to try and wrestle inflation down to a level they deem acceptable, around 2%/year.

That 2% target doesn't feel like a crisis. It's not a tiger that pounces and rips you to shreds. It's more like a boa constrictor which slowly strangles. Over 20 years 100 Pounds, Dollars or Euros will lose significant purchasing power. In two decades, with inflation at 2% a year, you would need almost another 50 units of fiat money to buy what 100 units will buy today. Over 40 years the purchasing power of your fiat cash will be less than half what it is today. Of course governments and central banks like to pretend that a Dollar is a Dollar is a Dollar. But in reality that's not true: we are all living in a slow crisis.

The slow crisis also threatens to speed up again. The Bank for International Settlements (BIS) has just done a survey of households in 29 advanced and emerging economies and discovered that the expectation for inflation is that it will be around 8% in the next 12 months. While there's no probability that rate of inflation will actually come about, peoples' fears that it may hit that level will influence their behavior. They are more likely to push for pay rises at or around that level, which in turn may contribute to higher inflation.

What can be done?

To protect against declining purchasing power you have a few choices. You can find a bank that pays a positive interest rate, i.e. higher than the inflation rate - and good luck with that. You can use your fiat cash to buy an object you hope will rise in value faster than inflation reduces the value of your cash. For many, that translates into a home, for some it means cryptocurrency but the volatility of that can be extreme. Not for nothing do most financial regulatory watchdogs warn that you may lose everything you invest. At least with a home you have a roof over your head.

Or you can buy gold. Over extended periods gold tends to keep its purchasing power. In 1900 a good quality man's suit cost around $35 and gold was $20.67/ounce. The cost of the suit was about 1.7 ounces of gold. Today the same suit costs some $2,000; the gold price is $3,325. The price of the suit has gone up by more than 5,600%. In gold terms the price hasn't changed.

With Glint gold is not just an asset you hold to protect yourself. It's a way to put your gold to use, to buy things with thanks to Glint's debit card. If you use your gold this way you can forget about how much purchasing power your fiat cash has lost. You can take comfort from the knowledge that you are paying the same today as you would 100 years ago - and probably the same 100 years from now. That's why enough is never enough - you'll need to keep topping up your gold.

With Glint gold is not just an asset you hold to protect yourself. It's also a way you can put your gold to use, to buy things with thanks to Glint's debit card. If you use your gold this way you can forget about how much purchasing power your fiat cash has lost. You can take comfort from the knowledge that you are paying the same today as you would 100 years ago - and probably the same 100 years from now. That's why enough is never enough - you'll need to keep topping up your gold.

For UK clients: At Glint, we make every effort to demonstrate a balanced conversation between gold, silver, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

For US clients: Graphic representations of value are for illustrative purposes only. The Glint debt card is issued by Sutton Bank, member FDIC. The sale, purchase and storage of precious metals are offered by Glint and not Sutton Bank. Your investment in precious metals through Glint is

·        Not insured by the FDIC.

·        Not a deposit or other obligation of, or guaranteed by, Sutton Bank.

·        Subject to investment risks, including the possible risk of loss of the principal amount invested.

All investments involve risk, including possible loss of principal. The value of precious metals is affected by many economic factors, including but not limited to the current market price, demand, perceived scarcity, and quality of the precious metal. Precious metals can increase or decrease in value. Past performance is not a guarantee of future results. As such, investing in precious metals may not be suitable for everyone.