After months of hearing how inflation is transitory, it is finally becoming clear to just about everyone that inflation is anything but transitory. The latest inflation data showed that prices rose nearly 1% month to month, and over 6% year on year. Not only was that the highest inflation rate in decades, it may not be the end of rising inflation. And now markets are sitting up and taking notice.
As you might expect, gold and silver saw significant price growth in the immediate aftermath of the CPI announcement. That’s an indicator that markets are finally becoming aware of the reality of rising inflation and of the role that gold and silver can play as an inflation hedge.
The Future of Inflation
It’s clear now that we haven't seen the last of inflation and rising prices. That’s the natural result of a massive increase in the money supply that we saw last year as the federal government engaged in trillions of dollars of fiscal stimulus, and the Federal Reserve complemented that on the back end by vacuuming up trillions of dollars of Treasury debt onto its balance sheet.
Most likely you’ve seen prices increasing this year at the grocery store, particularly for meat. It seems that all food is rising in price. And if you’ve had to fill up your car, you’ve obviously seen prices continue to climb since the beginning of the year.
Other price increases have been less obvious, but nonetheless damaging to those who have to pay them. Car prices, for one thing, have long since ceased to conform to reason, as both used and new car prices are climbing. In some cases, used cars are being sold for more than they cost brand new, so tight is the supply.
Housing prices also continue to rise, putting pressure not only on first-time homebuyers, but also on older Americans looking to downsize. And those prices continue to rise faster than incomes.
At this point there’s no telling how high prices will rise and how long we’ll see inflation spiraling upward. With the Fed having more than doubled the size of its balance sheet, and with nearly $5 trillion in new money having been created by the time the Fed winds down its asset purchases in mid-2022, we could see rising inflation for many months to come, if not years.
Since inflation rates are now seeing highs not seen in 30-40 years, most investors alive today have no experience investing in that type of environment. We’re used to seeing inflation around 2% or less, and we’re used to seeing investment returns far in excess of inflation.
Now that inflation is over 6% year on year, and at an annualized 11% rate, investors are really going to have to think hard about where they invest. If inflation reaches into double digits like it did during the 1970s, even 10% annual investment gains won’t be enough to enable you to make real gains on your investments.
How Gold and Silver Perform
Aside from high inflation, the 1970s also saw poor stock market performance, with markets growing about 5% total for the decade. Imagine seeing the value of your dollars halved over the course of a decade, while your investments only gained 5% in nominal terms. That’s the kind of investing environment investors faced in the stagflationary 1970s, and it’s the kind of investing environment we might be facing now in the 2020s.
But just because stock markets performed poorly doesn’t mean that there weren’t options to make gains. Gold and silver, for instance, saw annualized gains of 30% over the course of the decade. That far exceeded not just stock markets, but also even the highest inflation rates of the decade.
If the inflation we’re witnessing today portends years of future high inflation, gold and silver could very well repeat their 1970s performance. And that could make them one of the best hedges against inflation in the years ahead.
Benefit from Buying Gold and Silver
Many investors today remember the aftermath of the 2008 crisis, when stocks struggled to regain a foothold. But gold nearly tripled in price while silver more than quintupled. And many of the investors who witnessed that performance jealously back then vowed that they would be invested in gold and silver the next time stock markets plummeted.
We could be on the verge of another stock market correction today, as markets are fueled more by retail speculation than any strong underlying economic fundamentals. Millions of Americans remain out of work, inflation is pushing ever higher, and supply chain disruptions are wreaking havoc on both producers and consumers. What we’re witnessing today is nothing less than the reemergence of stagflation, half a century after it last showed its face.
Just like the 1970s stagflation, there’s likely nothing the Fed will be able to do to stop it. And any attempts to overcome stagflation will likely take the form of more monetary easing, likely exacerbating already strong inflation.
Now is the time to buy gold and silver to protect your assets. A stock market correction could very easily result in losses of over 50%, just like in 2008. And with the prospect of little to no recovery for the rest of the decade, any future losses could become locked in.
In contrast, the worsening economic climate bodes well for gold and silver, which could see strong growth in the future. And investors who position themselves well in gold and silver today could reap the rewards in the future.
There are numerous ways to invest in gold and silver, from precious metals IRAs to direct purchases of gold and silver coins that you store at home. With dozens of options available to you, it can be overwhelming, particularly if you’ve never invested in precious metals before.
Thankfully the precious metals experts at Goldco can answer any questions you may have about buying precious metals. And if you decide that buying gold and silver is right for you, Goldco’s representatives can assist you through the process.
With thousands of satisfied customers over the years, Goldco consistently ranks as one of the top precious metals companies for customer service and satisfaction. We work hard to ensure that you are happy with your precious metals purchase, because we want our customers to benefit from the safety, security, and future price growth that gold and silver can offer.
If you have assets that you want to protect against inflation, whether in a retirement account such as a 401(k), in a bank savings account, or in some other financial account, Goldco’s experts can help you protect them. Call Goldco today to learn more about how gold and silver can benefit you.
Trevor Gerszt is founder and CEO of Goldco Precious Metals, a privately held retirement services firm in Los Angeles specializing in wealth and asset protection. Offering a range of investment accounts including traditional, self-directed and Self Storage IRAs; as well as IRA rollovers, Goldco has been named the #1 gold IRA provider in the U.S. by Inc. 500.
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