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When you look at the raw data, employment income in America has been on the rise for decades. Unfortunately, inflation has cut into most of these gains. And for many people weary of stagnant wages, the idea of buying gold to hedge against inflation is becoming popular.
This is far from a new idea. People have viewed the yellow metal as a store of value for thousands of years. Whenever economic uncertainty arises, investors flock to precious metals. And with sluggish wages wearing on folks, it’s understandable why gold is in the spotlight.
If you’re not really sure how gold can help, this guide is for you. Too many people have seen their paychecks go up with no actual change to their economic situation. While it’s up to our legislators to correct this on a large scale, creating your own hedge against inflation is the right idea.
Higher Paychecks — Lower Real Wages
Even as the country went its longest period without a minimum wage increase, paychecks in America were still on the rise. While this growth was relatively steady, there was a sharp spike as employers sought to fill positions during the COVID-19 pandemic.
These increases helped some companies maintain a workforce, but it didn’t change the reality of the economy. The simultaneous heightened demand for gold as a hedge against inflation showed people were still worried about the economy. And as it turns out, they were right in doing so.
Only two months after national headlines announced a “surprise jump in U.S. wages,” another headline brought us back to reality. It was simple yet hard-hitting: Inflation Wiped Out America’s Pay Raises. Even as paychecks grew, prices for certain products increased as well:
- Gasoline
- Home goods
- Cars (both new and used)
- Food
- Real estate
This is just a short list of consumer goods affected, but it shows how everyone’s wallets took a hit. Of course, this didn’t dampen the appeal of precious metals. In fact, dealers saw an influx of people ready to buy small gold bars. This tells us a very important story.
Even though most folks know gold is a hedge against inflation, many view it as a “rich man’s investment.” In fact, that’s why you’ll often hear silver referred to as “poor man’s gold.” The shortages of gram-gold bars, though, showed that everyone was flocking towards the yellow metal.
It’s a simple fact that you can buy small gold bars at a fraction of the cost of larger items. For instance, a 1-gram bullion bar costs about 5% of what you’d pay for a 1-ounce bar. More people certainly are buying gold, but is it really helping protect against stagnant wages?
Can Gold Combat Inflation?
By mid-2021, real wages were lower than at the start of the pandemic. This is a reality everyone had to live with — even if it looked like paychecks had gone up. But when looking at the massive increase in gold demand, it became apparent that Americans knew what was going on.
Among all precious metals, gold gets the most attention for being a hedge against inflation. Silver often gets a bump when economic uncertainty increases, but its price is far more volatile than its golden counterpart. Of course, more stability doesn’t always make for a good investment.
To see if gold really acts as a strong hedge against inflation, we need to look back at history. The price of gold has certainly gone up over the long term, but has it really offered impressive returns during inflationary periods? You don’t have to go back too far to get your answer:
- Between 1972 and 1973, inflation increased from 3.4% to 8.7%. Gold jumped from $63 to $106 during this period.
- Inflation shot up from 9% to 13% between 1978 and 1979. Gold more than doubled during that time — $226 to $512 per ounce.
- The rate of inflation nearly hit 15% in the early 1980s. The price of gold increased 15x and hit a record of more than $660 at the same time.
- Between 1986 and 1987, the inflation rate quadrupled. Gold simultaneously had an impressive increase of over 20%.
- Inflation hit a 13-year high in mid-2021. This was the first time gold broke the $2,000 mark.
It’s hard to argue against these facts. While other economic factors certainly occurred during these times, gold held up as a stellar hedge against inflation. Could this possibly protect against real lowered wages? Recent events seem to make the answer clear.
Thanks to inflation, real wages fell 2% between the last quarters of 2019 and 2020. If you had an ounce of gold during the same time (i.e., Dec. 2019 through Dec. 2020), its value increased by more than 25%. There’s no doubt that buying gold coins outperformed putting money in the bank.
Of course, history is no guarantee of future performance. The spot price of gold can fluctuate in both directions. What we know for certain, though, is that its historic price directional trend is up. So regardless of short-term fluctuations, buying gold provides a tremendous store of universal value.
Buying Now Is Often Cheaper Than Waiting
The reality is that everyone knows gold is a hedge against inflation. And while surprises can occur, financial experts can typically predict the direction of the metal’s value. This means it’s very unlikely that you’ll get a chance to buy right before economic turmoil.
One need only look at some of the primary causes of inflation to understand why. The following events are significant when they occur, so once you hear about them, buying low is likely no longer an option:
- Federal Reserve policies: People take out more loans when the Federal Reserve (i.e., Fed) lowers interest rates. This drives up consumer prices as the demand for goods and services increases.
- Energy prices: Whenever consumer and business demand rises, the demand for energy typically increases as well. This drives up energy costs and can push inflation even higher.
- Regionalization: Countries around the world are trying to become less dependent on foreign nations. This regionalization reduces imports, and price increases occur as low-cost labor diminishes.
None of these events come out of left field. This means waiting until a failing economy is a certainty is a losing strategy. Imagine waking up and seeing that a stock tripled in value overnight — and then buying 1,000 shares. You essentially already missed the train.
Buying gold as a hedge against inflation is also typically more affordable now rather than later. That’s because the benchmark for the precious metal is the U.S. dollar. In other words, when the value of the dollar decreases, it takes more money to buy the same amount of gold.
There is no true economic certainty in this world. After all, who could’ve predicted in 2019 that a global pandemic would wreak havoc on the global economy? If you’re tired of inflation eating away at the increases in your paycheck, though, buying gold as a hedge against inflation might just help.
Fight Back Against Inflation by Buying Gold
Average hourly wages in America have increased nearly tenfold since 1964. Unfortunately, inflation kept the real value of these wages relatively stationary. And while the global pandemic saw fast pay increases, real wages were lower than before the first COVID-19 case.
Unfortunately, this proves economic certainty is uncertain even when paychecks are on the rise. By making the right investments, though, you can better secure your financial future. Buying gold to hedge against inflation is only one strategy, but it’s one that’s proven effective throughout history.
At Silver Gold Bull, we understand that higher paychecks mean little when inflation wipes out gains. That’s why we offer a variety of precious metals to help you prepare for an unpredictable economy. Visit our Gold Bullion Products page today to see your many options.
