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Can Investing in Gold and Silver Help Protect Against Inflation?

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Is purchasing gold & silver at this very moment a good idea? It seems like nowadays, this question has become one of the most popular ones among both investors and “regular” people, particularly now that equity volatility has re-entered.

Precious metals, especially gold & silver have been owned for thousands of years and what’s great about these two is the fact that they have real-world uses in electronics and jewelry, which offers more tangible value, plus there’s a relatively restricted supply of gold (in particular) and silver.

That’s precisely one of the reasons why these two have been considered as a hedge against inflation. However, in terms of statistics (referring to inflation), there’s a mixed record. So what’s the final answer to this question? Let’s discuss it below!

Are Gold & Silver An Inflation Hedge?

Gold As An Inflation Hedge

The consumer price index, also known as CPI is a widely-used measure of U.S. inflation, gained its first annualized gain of over four percent since 2008. Since then, the average annual consumer price index growth in the USA has been almost seven percent.

A wealth management advisor for Centurion Wealth Management, Darren Colananni, thinks that gold’s relatively poor performance lately showcases its flaws as an inflation hedge. He added: “Gold prices have been trading sideways to down for almost two years while inflation is at multi-decade highs.”

Interestingly, some studies have concluded that gold can be an efficient inflation hedge; however, only over a very long time horizon of practically more than a century. Regarding shorter periods, experts have uncovered that its inflation-adjusted price oscillates significantly.

Silver VS Gold In Terms Of Investing

What can we say about this? When it comes to gold and silver comparison, it is no surprise that people frequently compare them since they share the same palpable asset strengths, counterweights to stock markets, and some sort of haven opposed to inflation hedges. But still, it’s worth mentioning that these two precious metals have some key differences, such as:

  • Silver is a lot more cost-effective in comparison to gold
  • Silver is less liquid than gold
  • Silver is more volatile when compared with gold
  • Gold is much easier to store than silver
  • Gold is a better hedge than silver

Silver & Inflation Hedge

This year, it’s safe to conclude that inflation in the USA has “reached its peak”, but there have also been a couple of other similar periods (in terms of inflation) since the beginning of the 1970s.

When it comes to silver, it has had pretty mixed results as an inflation hedge (as far as the 1970s are concerned). From 1980 up until 1984, its prices fell almost twenty-three percent annually during that period. 

Additionally, inflation was around 4.6% from 1988 to 1991, however, it’s worth adding that the prices of silver dropped almost thirteen percent annually during this period of time. Furthermore, since April of last year, the monthly consumer price index reading in the USA has averaged a year-over-year gain of almost seven percent. Ever since the price of silver is down around twenty-five percent in general.

Does It Mean That Investing In Silver Is Recommendable?

Since it has a quite poor correlation to bonds, stocks, and other forms of commodity, it can aid in diversifying your investment portfolio. Experts in this field have different opinions when it comes to the amount that should be allocated to gold & silver; however, what most investors do is give approximately five percent of their portfolio to commodities as a whole.

Of course, it doesn’t necessarily mean you should stick to this percentage. Remember that that allocation could also be lower or higher depending on your investment horizon and current goals. 

Owning physical silver is generally always welcome and can be a pretty good idea for investors who do not perceive banks and other financial institutions as reliable and trustworthy. In addition, it’s worth noting that physical silver is weatherproof and is capable of surviving fires and floods. Just keep in mind that it can also be lost or stolen if not secured the right way.

Over a long period, it has served as a powerful hedge against inflation; however, nowadays, many professionals think that it’s not the best way to secure your portfolio.

Gold & silver investment has become one of the most popular topics over the past two years, which is why we decided to discuss it because we wanted to make things a bit clearer to those who aren’t sure what’s the right thing to do.

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