Thursday, May 19, 2011

Saving in 'Things' including Gold and Silver

Inflation is a killer for those fiat dollars stashed away in your bank deposit account.

It's not uncommon these days to find that the value of your money is decreasing in purchasing power.

The interest rate you get at the bank is less than the inflation rate. And by inflation rate, I don't mean the official one where, in the calculations,  they take out thoses goods and services which distort the real figures.

Recently we have been looking for bargains in bulk. We think, that beyond saving in sound, honest money, like gold and silver, the next best asset class is those commodities which we consume every day.

Food stuffs like butter, wheat, flour and sugar. You see, right now, it makes better sense to us to have our cash in the food bank at home. Take for example wheat. We have a wheat grinder and an bread maker and we make our own bread. We purchased some 25kg bags of wheat which should last us around 18 months of bread making. With prices of wheat about to rise dramatically (or even just a little), the 'cash' sitting around in our store room has a greater store of value than at the bank for the next 18 months.

What's more, we also feel a bit more secure should there there be shortages in the future.

Of course, the ultimate store of value are the precious metals. The best way of seeing how gold performs is by looking at oil in relation to gold. Oil is the best indicator of the value of gold as oil is the energy that drives our whole economic system. When energy prices rise (predominantly because of inflation - money supply increases) then most other assets and commodities rise also.

In countries like India, where inflation is rampant, the demand for gold and silver is high. They know through history about the ravages of fiat money.

You can see by this graph below that gold (red line) maintains it's purchasing power in relation to oil (black line) over time.

Gold v Oil adjusted for inflation

Today is Budget Day here in New Zealand. I plain to make some observations on this in tomorrows blog.

Gold in New Zealand dollars: $1897.81 per oz
Previous all time high: $1955.10 per oz

Silver in New Zealand dollars: $44.57 per oz
Previous all time high: $48.58
per oz

Articles of interest:

Video: Taibbi vs. McArdle on Goldman

See article and video here

World on course for next crisis, warns Gordon Brown

See article here
The Telegraph

The Anglo-Far East Company
The Original Private Bullion Custodian
Your reference: an-001

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