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Inflation Wants To Eat Your Money But You Can Beat It With Gold

By Damian RodgersMarket OverviewJun 17, 2021 07:38AM ET
www.investing.com/analysis/inflation-wants-to-eat-your-money-but-you-can-beat-it-with-gold-200586698
Inflation Wants To Eat Your Money But You Can Beat It With Gold
By Damian Rodgers   |  Jun 17, 2021 07:38AM ET
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Very few people fear inflation in the same way that they are concerned about a downturn in the stock market. It eats away at your money in a persistent way that is hard to perceive on a day to day basis. Yet, if you evaluate the impact of inflation on the buying power of a dollar after a long period of time the damage can be catastrophic. It is similar to how termites can eat a home from the inside out over time once they gain a foothold. The latest figures show that inflation is rising rapidly and the purchasing power of the US dollar is in decline. According to the Bureau of Labor Statistics the index for the price of used cars and trucks continued to rise sharply, increasing 29.7% over the past year. The energy index rose 28.5% over the last 12-months.

Over the past 10 years inflation has averaged roughly 2%, until this past year when inflation started to spike in a significant way as reflected in the Consumer Price Index increasing 5%. Now, let's check what would happen to your money if inflation averaged 5% for 18 years, for illustrative purposes. Say you have $20,000 in the bank, earning interest at a rate of .9%. With an inflationary rate of 5% that $20,000 will be worth just $9,334.60 in 18 years relative to its buying power today. It took 18 years for that money to devalue in this scenario to less than half its current buying power today. During those eighteen years we may have not fully appreciated that our money was losing its worth if we didn’t put in the effort to understand how inflation works.

It is common to not like risk and be frightened by the downturns in the market. So many of us place our money in the bank and just let it sit there earning interest. It may feel like your money is safe in the bank with FDIC insurance. However, when inflation is running at a 5% annualized rate and a CD is paying a .9% interest rate the numbers just don’t work out pretty for savers.

The bank is one of the places that you can keep your money and know that it is virtually guaranteed to lose its purchasing power over time. In fact, you could accurately think that the more time you spend letting your money earn interest in the bank, the more “real” money that you are guaranteed to lose.

When the Federal Reserve talks about low or transitory inflation, while it may be true for the economy overall, it certainly does not feel that way to the average consumer. When I go to the gas station I can say for sure that my money does not go nearly as far as it used to. At night when I look for homes on Zillow I can see their prices rising rapidly. My neighbor sold their house into a bidding war at well over asking.

Do Not Ignore Inflation: Fight It With Gold

Inflation is definitely there, it is gaining strength, and it is your enemy. The urgency for fighting inflation has been especially clear after the Federal Reserve increased the money supply by 25%. It is pretty hard to imagine how you can create 25% more money out of thin air without it pushing prices straight up. The good news is that there is a clear antidote to the way that inflation slowly poisons your portfolio.

Gold has done a phenomenal job of keeping ahead of the pace of inflation and has stood the test of time. While the Federal Reserve can print money, they can’t print gold. Gold is ultrasound money in a world that is addicted to the printing press. The key to letting gold really work for you is employing it in a way that enables you to both own gold and earn a yield.

The Solactive Gold-Backed Bond Index has compounded at 14.57% annualized since 1/3/2006. It is designed to invest in a portfolio of investment grade corporate bonds, then hedge that portfolio 100% to the price of gold. Strategy Shares Gold-Hedged Bond ETF (NYSE:GLDB) is designed to track the Solactive Gold-Backed Bond Index and can be a great ally in your battle against inflation. This compares favorably with sovereign gold bonds which are government bonds that are denominated in the price of gold.

gold vs purchasing power
gold vs purchasing power

Inflation Wants To Eat Your Money But You Can Beat It With Gold
 

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Inflation Wants To Eat Your Money But You Can Beat It With Gold

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Comments (6)
Rob Fordham
Rob Fordham Jun 19, 2021 11:45PM ET
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Gold ha ha ha hahanhaHa !!!! Sorry but really? GoldHas been stuck in 1 -2k forever. It earns nothing it makes nothing it creates nothing but invest in it?
Larry DeAngelis
Larry DeAngelis Jun 19, 2021 12:34PM ET
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If you liked Gold at 1900 you will love it at 1500!
Rob Fordham
Rob Fordham Jun 19, 2021 12:34PM ET
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Yep gold is the worst investment ever. The whole thesis is it will be there if ecomomy tanks but it that does happen gold will tank too
Larry DeAngelis
Larry DeAngelis Jun 19, 2021 12:34PM ET
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Thanks Rob
Larayna Aelin
Larayna Aelin Jun 19, 2021 12:34PM ET
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TINA .... Gold seems to be attractive when nothing else really is ....
sadegh rezaee
sadegh rezaee Jun 19, 2021 6:46AM ET
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If you are Venezuelan or Iranian, you will have the best understanding of the inflation catastrophe. When the price of goods doubles in a few days. You are lucky people.
الهه امینی نیا
الهه امینی نیا Jun 19, 2021 6:46AM ET
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Yes.We are Miserable people😭😭😭
Larayna Aelin
Larayna Aelin Jun 19, 2021 6:46AM ET
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Same with Argentina.
Robbie Williams
gumnut Jun 19, 2021 6:46AM ET
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Yeah, call me when the CPI YoY is 42.
Doug Wildman
Doug Wildman Jun 17, 2021 9:04AM ET
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+528% over the last twenty years…buy the dips.
Rob Fordham
Rob Fordham Jun 17, 2021 9:04AM ET
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SP 500 up much more than that but yea buy a yellow rock that earns nothing and creates nothing
Art Peterson
Byonik Jun 17, 2021 9:03AM ET
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The perfectly formed cup and handle says all. This week is a buying opprtunity. A time to accumulate.
Steven Orr
Steven Orr Jun 17, 2021 7:58AM ET
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well this article didn't age well
 
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