Tuesday, May 1, 2012

Back to the Future

Here's a blog post of mine from one year ago. It is often interesting to recap and see if what was written in the past actually stacks up:

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 those goods and services which distort the real figures. Whatever suits their politics it seems.

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.

(MB over the last twelve months from doing this, we are about even. Prices have risen slightly, but we have no regrets. Already the IMF is warning of fast rising food prices this year again)

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.

(At around the time this blog was written, gold and silver got hammered down in price. However, one year later, prices appear to have bottomed and may be coiling for a spring upwards. Global systemic risk still very much exists out there and the fundamentals for holding gold and silver remain intact)

Gold in New Zealand dollars: $2033.60 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $37.86 per oz
Previous all-time high: $59.19
per oz (30 Apr, 2011)

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