Gold is a safe-haven asset. When people are frightened about the economy or other assets, they pile into gold. Over the last few years, gold has gone up over and over, shattering old nominal price highs. It’s also known by many as the greatest hedge against inflation possible.
But plenty of people have argued that gold isn’t a good hedge against inflation and that it’s just a quaint old hunk of metal that is kind of pretty. Warren Buffet is one of those. Who’s right? We’ll answer that question right now.
Why Gold Beats Inflation
Gold beats inflation because it stays static, functions as a type of money, and it can’t be printed by corrupt central bankers. It’s value is based on supply and demand, just like paper money — only it can’t be printed to cause inflation, unlike paper money.
This is actually why we don’t have the gold standard today — politicians like paper money because it can be inflated and deflated depending on the political winds. So the very reason we have paper money is the very reason gold beats inflation.
There’s no doubt that gold keeps its value. From 2009 the 1800s, gold stayed roughly the same. There were ups and downs, absolutely — but in the end, it balanced out to roughly the same amount, after inflation. This is unavoidable.
Some people believe that because gold doesn’t instantly respond to inflation, it must not be a good inflation hedge. This is stupid, honestly. Over time, gold keeps its value — that means it’s a long-term hedge. Short-term, every market is volatile, but over time, gold keeps its head up.
Why Gold Can Save Your Scalp
Some people think this is a meaningless honor. Who cares about inflation, says the politically correct investor. They don’t want to beat inflation — they want to make money. The reason this is important is simple to those of us who understand the value of gold — just look at the stock market. It’s lost money since 1998. If you put money in the stock market in the mid-90s, you’d be breaking even just about now.
Yeah, that’s a long time to break even. Gold is an important asset because it’s often in a bull market when the stock market is in a bear market — this means it’ll save your scalp and stop your portfolio from getting murdered. It’s an insurance.
Why Gold Can Help You Make Money
I’ve harped on it dozens of times — and for good reason. Gold is one of the most profitable tools you can have in your portfolio, because it usually goes up while stocks get destroyed or stay sideways. During the 70s and 2000s, gold did fantastic — stocks did horrible.
How does this make you money? Simple: through the art of rebalancing. Rebalancing is a topic I’ll be explaining more in-depth over the next week. I keep meaning to explain it, and keep having more topics occur that need to be addressed — stay tuned.
Should You Buy Gold Right Now?
I’m buying gold almost constantly because I have gold in my portfolio at least 10-25% — no matter what. If gold prices start collapsing, I’ll be buying up a ton of gold to make up the difference. The reason, again, is about the rebalancing mentioned above.
Rebalancing allows you to make your portfolio less volatile, more safe — and gives you cash when asset classes are historically cheap. It’s really exciting. Stay tuned — I’ll email subscribers the tutorial soon.
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