Gold has been a part of human history since the beginning of time. For centuries, from Pharaohs to Kings gold has been associated with prestige, power, wealth, and freedom. If you don’t know much about this yellow precious metal, reading this information will be a great place for you to start.
So, why do I say gold is insurance during times of crisis? Well, before we begin to get into the meat of the matter I have a question for you; have you ever owned an insurance policy? If not, I’d imagine at the very least you have heard of insurance before and have a basic understanding of what it is. If you don’t, Investopedia, one of the top online financial education resources, defines insurance like this: “a contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company. Insurance policies are used to hedge against the risk of financial losses.” OK, so THAT was the insurance jargon so, to make this easier to understand I’ll give you my layman’s term break down; insurance is simply a promise to protect something in the event of suffering some form of loss. As a quick note, if you’d like to learn more about some basic insurance products that are valuable and important to have, read my article “4 Pillars Of Protection: Products to Consider in Your Insurance Portfolio”.
That said, let me explain why gold is insurance during times of crisis.
During the time of this writing, our world is experiencing a global pandemic called the Coronavirus disease or COVID-19. It has halted almost all regular daily activity leaving a large population of North America, and the world for that matter, unable to work and confined to self-isolation at home. When I first got news about this disease it was late in the month of December of 2019. At that time one ounce of gold was roughly $1,515 USD. Then, a few short months after as the virus accelerated around the world, the value of gold peaked at $1,700 USD in March of 2020 then, slipped back to roughly $1,650 USD by the time of this writing. It is not uncharacteristic for gold to moderately dance slightly up and down in the short-term, however, long-term the trend has always been in an upward fashion.
I have often said to clients that insurance is something you get but hope you never need. Well, in the same way, gold is always good to have because during times of crisis people who have gold have the option of liquidating some of their gold assets in order to get their hands on some cash. And this is the reason why gold is insurance not only during times of crisis, but also over time.
Let me explain what I mean by using an example based on inflation. Using a US inflation calculator I determined that what would have cost $288.50 in the year 2000, today costs $433.38 resulting in an inflation of 50.2%. This means that your money LOST more than fifty percent buying power because now you need MORE of your dollars to buy the same thing! Conversely, at the beginning of the same year on January 3, 2000, one ounce of gold valued at the same $288.50 however, on the first trading day of this year (January 6, 2020), that same one ounce of gold valued at $1,558.00!* If you had known the power of this yellow metal and simply “parked” $288.50 in one ounce of gold over that 20-year period, your asset value would have grown by 440.03%! Inflation is a slow and gradual increase over time which is why so many people don’t realize the loss but, now that you KNOW the numbers you don’t need to be a mathematician to conclude that a growth of 440.03% is better than a loss of 50.2%.
So, if you had to choose a savings vehicle, which would you rather: cash or gold? The fact of the matter is this: when you save gold you protect your future long-term buying power but when you save cash, your buying power is constantly leaking and fighting a losing battle against inflation.
If you haven’t been saving gold to this point rest assured that it is not too late to start and all is not lost. The good news is, now you know. And you may have heard the saying before that KNOWLEDGE IS POWER.
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