Is Gold and Silver a Good Hedge Against Inflation?
Gold and silver have been viewed as good hedges against inflation for many years. Gold, in particular, has exhibited peculiar properties in the past, including becoming more expensive when the US dollar loses its value.Is Gold and Silver a Good Hedge Against Inflation? As a result, many investors choose to invest their money in Gold whenever they envisage a situation where the US dollar is likely to lose its value. But emerging studies show that it is time to dispel the notion and rethink the fact that you can only hedge against inflation by buying Gold and Silver.
Already, investors are getting wary of Gold and Silver because they no longer exhibit the characteristics that made people consider them safe havens against inflation. As such, the modern investor is looking at cyclical equities as alternatives for hedging against inflation. There are plenty of reasons why investors think that it is time to look elsewhere, including considering investing in a silver IRA. Read on to see why gold and silver are no longer a good hedge against inflation and why you should invest in a silver era.
Recent Lackluster Performance of Gold
Gold has exhibited a lackluster performance in the recent past, which has made stakeholders raise numerous questions and concerns on precious metal status as an inflation hedge. In 2021, Gold, which had maintained its value against fiat currency for many years, lost about 7.2% of its value. This was the time when the covid 19 was ravaging the world economies. Most economies contracted and decelerated at rates that have never been witnessed before.
No Correlation with Daily and Weekly Price Movements
Generally, gold and silver experience less volatility than other assets. But nowadays, they exhibit no correlation with daily and weekly inflation rates. Also, in the 1980s, Gold and Silver correlated well with the consumer price index. But they are now showing surprisingly poor correlation save for the 2007 – 2008 period when the world suffered from a financial crisis. During this period, the value of Gold and Silver increased as the world inflation surged to 4%.
The Emergency of Digital Assets
As more and more central banks recognise the role of cryptocurrencies in the world, investors are looking to digital assets as better stores of value. Bitcoin, in particular, is considered a better store of value due to its low volatility. As a result, it is considered a better inflation hedge alternative.
Competition between Gold and Silver
Both Gold and Silver are the best precious metals you can ever hold. However, Gold has less industrial use compared to silver. Silver is currently being used in production processes, including electronic devices, solar panels and electrical systems. So its industrial demand will continue to go up even during times of inflation. It means that the price of Silver will continue to rise compared to Gold. So investors are looking at the possibility of having more Silver and other assets in their portfolio.
Is Gold and Silver a Good Hedge Against Inflation?Investment in Energy
The demand for energy is rising steadily. It means that its price is likely to continue going up. So investing in energy appears to be the most effective hedging strategy against inflation. Note that the energy sector has outperformed other sectors of the economy for many years, even when inflation is rising. It explains why the Vanguard Energy ETF increased by over 118% in 2021. The company tracks the stocks of major energy players and so provides valuable information to investors. Also, the largest energy ETF Energy Select Sector SPDR fund went up by 104% during the 2021 period.
More Investment Opportunities
In the 60s, 70, and 80s, common investment options were Silver Gold and real estate. However, internet evolution has brought forth many other opportunities that make investors spoilt for choices. Currently, you can invest in mining companies, treasury securities, stocks and even digital assets. So Gold and Silver are no longer the only options for investors interested in hedging against inflation. Furthermore, we have online financial advisors equipped with tools that can accurately analyse equities to help investors select the best way to hedge against inflation.
Real estate Investment Trusts
REITs are companies that operate and run income-generating real estate. These entities are slowly being considered good hedges against inflation because property prices tend to rise as inflation rises. REITs consist of a pool of real estate that pays dividends to investors at the end of a financial year. Moreover, since they run and operate real estates located in different parts of a country they offer good investment opportunities to investors worried about rising prices of goods and services.
Is Gold and Silver a Good Hedge Against Inflation?Conclusion
So as inflation continues to hit the world economies, investors are looking beyond the traditional Gold and Silver. They are looking forward to storing and preserving their wealth’s purchasing power by investing in cyclical equities, energy stocks and cryptocurrencies.
