How Do Gold And Silver Protect Against Inflation?

You keep hearing about how gold and silver protect against inflation, but how exactly do they do that? Why do they have that reputation? Gold and silver, and other precious metals, are traditional materials that people often turn to when fiat currency — which is what the dollar is — starts to lose value. If it loses value, you need more of it to buy goods. Gold and silver offer some protection against inflation because selling gold or silver will get you more dollars during inflation, making it easier for you to buy items you need.

Matching Rising Prices

Because gold and silver are valued in cash, if inflation happens and you need more cash to buy things, the value of gold and silver will go up, too. You're not going to see the inflation rate increase and the prices of things increase without seeing gold and silver prices increasing, too. Those prices will continue to rise as inflation rises.

Good Reputation for Holding Value

While gold and silver prices can drop, of course, the two metals are known for holding their value over time. Barring some amazing development in which people stop liking gold and silver, the two metals are always going to be considered valuable. So, even if inflation reverses and you have deflation, with the prices going down, you know they'll go up again. (And if deflation happens and the price of gold and silver coins drops, that's your cue to buy more.)

Easy to Build up if You Have the Initial Cash

You can buy gold and silver in a number of forms, physical and non-physical (as in gold futures), but the easiest way to build up gold or silver reserves is to buy physical forms such as coins and jewelry, like chains. Aim for as pure as you can get, which means coins are going to be the more secure choice; jewelry comes in varying levels of purity, and it's easy to end up with a less-pure version (e.g., 14-karat gold). Coins have known, standard levels of purity; for example, a 1-oz. Canadian Maple Leaf gold coin is 99.99 percent pure gold, always. But if your cash is limited, you could do worse than picking up a few jewelry chains, to begin with. You can also find smaller coins in gold or pre-1965 U.S. quarters, which have high silver content.

As long as you keep buying known gold and silver coins, even in small amounts, you'll build up that stash. Look at coin stores near you for smaller gold coins and silver quarters and dimes to start, and work your way up to mint-issued 1-oz. gold coins and silver commemorative coins. Hang onto them so that, if inflation gets really bad, you have a store of soon-to-be-cash ready to be sold.

For more information on gold and silver, contact a coin shop like Rocky Mountain Coin.