Gold provides inflation and deflation protection
04/11/2021Daniel Fisher
**Updated Nov 2021
Inflation is now rising rapidly as a consequence of;
- Massive global Quantitative Easing as a reaction to the Covid pandemic, devaluing fiat currencies around the world
- Supply squeeze inflation, caused by a combination of Brexit and Covid-related supply chain issues. With panic buying rearing it’s head, the UK has experienced shortages of petrol, food and toilet rolls.
In 2021 and beyond, gold is becoming a mainstream way of moving money out of the banks to achieve protection from the erosive power of inflation.
With Bank of England policy maker Adam Posen stating the case to print more money, it reinforces the case for owning physical gold.
The Bank of England have already printed £200b of Quantitative Easing (QE) in a desperate attempt to support the UK’s floundering economy. There is now talk within the central bank to extend this by another £50b and potentially open the doors for a further £200b of ‘funny money’.
Inflationary environment
But what does all this mean to you and me? Well, the last country to use QE in this way was Zimbabwe and they now have over 1million % inflation rates. That means its people literally cannot carry enough money to buy a loaf of bread! Now I’m not suggesting for a moment that we will see similar levels here in the UK. However, this untested act of desperation combined with the record low interest rates can provide the perfect cocktail for an inflationary environment. I can definitely see inflation hitting double digits in the UK in the next few years as the economy eventually heats up.
For the average person that means that their hard earned cash will lose its buying power. If wages don’t increase by 10% or more, then we will all be worse off. Our savings in the bank which receive 1% or less interest now will be losing value day after day.
Deflation
That’s why I feel it is the proactive and prudent saver who looks to shift a proportion of their savings sideways into physcial gold. Why expose yourself entirely to Sterling, its probable weakness and inflation? Surely its wise to spread your eggs into various baskets and the gold basket is the safe haven asset which protects against both inflation and deflation.
It is policies such as QE which reminds us all that its always worth having a little gold in your portfolio as we never know what the world will look like tomorrow. Certainly we can never safely predict where the central banks will decide to stop.
