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Protecting savings from inflation

Updated: Apr 11, 2022

Markets are shaken. Growth projections are down. Inflation is rampant.

The ongoing conflict in Ukraine along with pre-existing supply line problems continues to pile pressure on asset markets this week and has led to most economists scaling back their global growth forecasts whilst at the time issuing warnings of further inflation.

We have already been feeling the effects of inflation of late. Household energy bills are increasing dramatically. Prices at the pump are at all-time highs and food prices at the supermarket seem to be going up almost daily. As the cost of essential goods and services skyrocket, the standard of living of average families will inevitably become strained. Governments that were quick to act economically during the Covid 19 crisis are still counting the costs of the pandemic and may well find they have fewer options at their disposal to intervene this time around.

Policy makers will have to walk a tight rope between the need to control and reduce inflation and the effects any anti-inflation policy may have on growth further down the road. A tight rope indeed; get it wrong either way and the result will almost certainly be a fall in to recession. As it stands, inflation is at roughly a thirty-year high and rising, so we can expect to see prices continue to increase for the time being regardless of policy.

Whilst high fuel and food prices will always grab the headlines, far less publicised is the devastating effect inflation has on our savings. Our Pounds, Euros and Dollars in the bank already have much less buying power than they did just a few short months ago. Central banks will undoubtedly raise interest rates at their upcoming meetings in the hope of bringing inflation under control or at the very least slowing it down. This however will do nothing to counter the silent erosion of our hard-earned savings and will only add further pressure to both families and businesses in the form of higher loan and mortgage repayments.

Given the current situation, the question of how to protect one’s wealth from the spectre of inflation should be at the forefront of everybody’s mind.

Complicated hedging structures used by investment professionals and the very wealthy are more often than not out of reach to smaller investors simply seeking to protect their savings. Thankfully, there is a relatively simple way for normal savers and investors to protect themselves financially in times of high inflation or recession.

Gold has long proven to be an effective hedge against inflation and has the added benefit of being highly liquid. Throughout history gold has held its value better than any other asset and is still the go to safe haven for many money managers around the world today

Over the last 40 years gold has increased in value at an average of over 10% per year, which when compared to cash deposits and savings accounts is a fantastic rate of return. More importantly wealth held in gold over this time period has maintained its buying power whereas cash kept over the same time has lost buying power. In fact, the US Dollar has lost over 70% of its value since 1980.

The US Dollar has lost over 70 % of its buying power since 1980

One hundred US Dollars is equivalent to nearly three hundred and fifty dollars in today’s money adjusted for inflation

Gold is relatively easy to acquire, it is however important to understand that there are different ways to go about this and not all gold investments are suitable for wealth protection. The market is crowded with many types of gold offerings. From coins to exchange traded funds, gold savings plans and so-called gold backed crypto currencies. Each can have benefits and risks so it is imperative to establish exactly what it is your buying and from whom. Equally important is to make sure you are not over paying,

To help the readers of this blog better navigate the gold market, Vigilant Capital has compiled an impartial list of things to consider when looking at gold for either investment or wealth protection. The paper on “things to consider before buying gold” is a list of 20 of the most important questions to ask before parting with money on a gold investment. Please get in touch via our Contact us page to request your free copy.

Providing it is acquired and stored correctly, Gold offers an unrivalled store of value and is an excellent way to protect your wealth from inflation.

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