Gold and Silver Bullion – The Ultimate Inflation Hedge

Is the ultimate inflation hedge gold and silver bullions? Currently, most investors believe so and now that inflation is at a rate that is twice the target of the government, it is not really a surprise that gold has not really lost its luster, so to speak.

World Gold Council new studies reveal the way in which gold has retained its values for the long haul, especially when it is compared to other commodities.

For example, for over fifty years, the price of both oil and gold has remained somewhat constant. Even if the price has increased over the years, if you were purchasing an oil barrel with gold bullion you would have somewhat similar weights to gold as you would have if it were nineteen fifty.

More surprisingly, gold seems to have retained its power to purchase over lengthy periods. In the time of King Nebuchadnezzar of Babylon, who had died in the year 562 BC, gold at that time purchased around three hundred fifty loaves of bread.

Currently, one ounce of gold can still purchase around three hundred and fifty loaves which indicates that over a period of two thousand five hundred years, gold has proven to be quite an effective hedge versus an inflated economy, especially when it comes to essential everyday items like food.

With the current economic situation of the United States, it is obvious that there is a concrete reason for the increased demand for gold and silver bullion.

The US government’s measure of inflated prices which is preferred is called the CPI or the consumer price index.

Now at Four PC, this level is expected to increase even more in the later months of 2011. The RPI or the retailing price index, on the other hand, which takes into account the house costs of people is actually the better gauge of rising prices and is currently at 5.1 PC.

With today’s flat wages and lower rates of interest, a lot of homeowners are really feeling inflation’s corrosive effects. Not only are pensions and salaries losing their daily power of purchase, the savings are also decreasing when it comes to value.

If inflation stay at the rate it currently is in, your saving’s value in true terms, will become half in as rapidly as fifteen years. According to financial data providers Moneyfacts, many if not all saving accounts today pay enough interest to really earn a true return when RPI inflation was taken into account.

With this background in inflation, it is then not really a surprise that gold and silver demands are rising. The fact that the supply of these commodities is limited is the reason that their prices are driven upward year after year.

Gold in particular has truly enjoyed a superstar decade. Priced traditionally in US dollars, it is still measured using a medieval system called a ‘Troy ounce.’ One Troy ounce is a little more than thirty grams and costs currently around one thousand three hundred and seventy five dollars. This is compared to more than two hundred dollars in the year two thousand and one, which makes the increase almost seven times.

Uncertainty with the economy has also driven gold and silver prices upward. In the year ’08, at the world financial crisis height, gold and silver prices rose almost forty-four PC over the year. As this class of asset was seen historically as a true haven in times of crisis, the same can be said during turbulence in the stock markets.

Even if equities were recovered, however, gold and silver prices continued to surge upward. Many investors enjoyed seeing a 34.5 PC return on last year’s gold and silver prices.


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