25 Jul Why Gold and Silver Beat Inflation Over Time
Economic knowledge builds on itself. The more we learn about gold and silver, the more we learn about monetary economics, and the more we learn about how weak the world economic system really is.
In this article, we’ll talk about one of the most destructive forces in the economy: inflation. Every year, we see prices gradually rise, squeezing people of more and more of their wealth, shifting money from one part of the economy to another.
Thankfully, we have the antidotes to inflation: gold and silver.
In fact, over time, gold and silver aren’t just good at beating gradual inflation — they also beat hyperinflation, deflation, and hyperdeflation.
Gold and Silver are the Best Money
One topic we constantly drive home is how gold and silver meet the standards for money better than any alternative. This is absolutely vital to understanding why gold and silver “behave” the way they do in the market.
To understand gold and silver on any level, we must first understand that money has certain key economic characteristics. The more something meets these characteristics, then the more likely that something is to be used as money.
Here are the four basic characteristics of good money:
1. Valuable to many.
2. Difficult to duplicate/replicate.
3. Lasting and durable.
4. Divisible and transferable.
When you consider these standards, you’ll quickly see that gold and silver meet all of them in spades. Understanding the characteristics of money is incredibly important to inflation, because inflation is a monetary event, as we’ll discuss below.
What is Inflation?
Inflation is a tricky word to define; how we define it changes everything.
For example, economists often say “inflation” when they mean “rising consumer prices”. This, however, doesn’t do us any good, because this definition mixes too many topics. Rather than clarify, this definition muddies the water.
For example, Prices can increase because of shortages that have nothing to do with money. If the price of oil goes drastically up because of a war that is occurring in the Middle East, this greatly muddies the water for people trying to understand the monetary economics of the market. The dollar isn’t falling in such a scenario — oil prices would just be going up.
Rising prices aren’t the same thing as inflation.
Because of this, it’s better if we use an alternative definition of inflation made popular by the Austrian school of economics: inflation is an increase in the money supply. In other words, inflation is when the amount of money in a market increases.
Understanding that inflation is a monetary event is vital, because it gives us a sign that our solution to inflation will probably be a monetary response to a monetary problem.
What’s Wrong With Inflation?
Inflation happens because fiat currencies don’t match the second standard for good money mentioned above. They can be easily duplicated with a printing press. And fiat currencies definitely are.
Remember, good money can’t be quickly inflated. Good money needs to be relatively stable compared to the alternatives.
The printing presses have been working overtime in DC for years. This has led to massive price increases in some markets, bubbles in many markets, and crashes in other markets over the last few years. It’s also led to a bull market for gold and silver.
When we understand that inflation and deflation are typically caused by fiat currencies that don’t match with the basic standards of what good money must be, this gives us a clue as to what we should own during these times — we should own stronger money.
How to Respond to Inflation
If inflation is an increase in the money supply, then this means that a strong option is to just buy a different kind of money. When Zimbabwe’s currency collapsed, for example, the people often just started using foreign currency.
The US dollar definitely has some problems. Unfortunately, when it comes to the US dollar, using a foreign currency doesn’t quite make sense because they’re fiat currencies as well.
In fact, foreign countries often have worse management and more money-printing than we have in the US. This means that buying foreign currencies would miss the point, because you’d face the same problem s.
So what’s the best money to own when paper currencies are experiencing inflation? The only money that isn’t being constantly inflated: gold and silver.
Because of the monetary principles we’ve discussed before, gold and silver won’t stop being the world’s real money anytime soon. Because of this, when paper currencies struggle or even die, the world’s “real money” is the place to have one’s assets.
This basic monetary principle is behind the gold and silver bull market.
This means that the “fundamentals” for gold and silver over time will likely be very strong so long as the money printing doesn’t stop — and it won’t be stopping anytime soon. If anything, the money printing is just getting started.
If you want to beat inflation, then you should save gold and silver. It’s just a question of economics.
Studies: When Paper Money Dies, Real Money Thrives
Studies show that, over time, gold and silver steadily outperform inflation. In fact, one of the most prestigious financial research organizations in the world — Oxford Economics — did a study on gold’s relation to inflation, and they formed two vital conclusions.
1. Gold fluctuates in the short run.
2. Over time, gold strongly beats both inflation and deflation.
Oxford Economics just compared the numbers and proved the correlation, but because we know the economics of “good money”, we know the reason that gold thrives during inflation.
When paper currencies struggle, real money thrives. This happens because people are trading their “bad money” for the “better money”.
What This Means for Investors
This isn’t just theory. It’s backed by the numbers, the economics, and a history reaching back for thousands of years. It’s for these reasons that the economist Murray Rothbard made this poignant prophecy years ago:
“I see a great future for gold and silver coins as the currency people may increasingly turn to when paper currencies begin to disintegrate.”
Adding more gold and silver to your savings every month is a simple, automatic, powerful way to survive any inflationary or deflationary storms in the future.
This goes exactly along with our approach here at SilverSaver®. Gold and silver are long-term assets for wealth building, stable saving, financial security, and beating inflation. It’s just a question of basic economics.