There’s a steady devaluation of fiat currencies (or government-issued money) as inflation continues to rise. It leads us to the question, where to next?
Finding alternatives to fiat currencies is important in order to safeguard your finances and investments. Diversifying your portfolio with precious metal assets, like gold, can protect your investments from unfavourable market conditions and minimise overall financial volatility.
Technological advancements in the financial services industry make it possible for everyone to access, buy, store and use gold anywhere in the world.
This then becomes an incredibly flexible option with the cost of living (still) going up.
The cost of living is skyrocketing, but are fiat currencies keeping up?
The cost of living is a source of anxiety for many Australians. The soaring prices of essential goods are quickly outpacing wage growth, putting strain on family incomes and draining savings.
The lack of resources around essential commodities (e.g. energy, agri-foods and building materials) and continued bottlenecks in staffing and supply systems have resulted in global shortages that increase demand and further inflate prices. Correcting inflation is no easy task, while central banks try to contain monetary inflation by increasing interest rates, which causes its own fair share of pain.
Increased interest rates are designed to make money more scarce. This can discourage people and businesses from spending their disposable income and force their focus on addressing loan and credit repayments.
That makes the value of fiat currencies dependent on the issuing government and the monetary policies in place. Fundamentally, your money is backed by faith and trust in your government to act responsibly and balance its books.
This hasn’t always been the case; Previously the gold standard pegged most currencies to the US dollar -or gold- at a fixed rate. When President Nixon suspended gold convertibility in 1971, the US Dollar lost a lot of its value – 86% of purchasing power has been lost in the past 50 years. When you include steady annual inflation, today’s prices are 7.14 times higher than in 1971.
All this equates to investors and consumers having little control over their purchasing power, especially when fiat currencies are so easily impacted by geopolitical factors (e.g. the pandemic, climate change and supply shortages).
Pandemic, crisis or war: In the face of adversity, gold always remains strong
Gold is known as a “safe haven” asset because it can perform well even during times of crisis and act as a hedge against inflation. History has proven that even when a currency is completely wiped out, gold retains incredible value that stretches across every continent and culture.
Having a strong and stable investment option is especially relevant now with global conditions shaken. Great power geopolitics are currently at play, fuelling sanctions, causing armed conflicts as well as fuel and food shortages across the globe.
The recent reclassification of gold as a tier-1 zero risk-weighted asset in 2019 has also helped to bolster the flexibility and accessibility of gold. The new capital classification allows banks to hold physical gold as the equivalent of cash, potentially leading to higher long-term demand and increased value.
This effectively allows commodity money to compete against fiat money, especially with more people looking for wealth options that aren’t pegged to the US dollar.
Modernising gold through fintech
Investing in gold has been overlooked by casual investors until recently. Gold earned a reputation as being ‘old’, mostly due to its inflexibility. Buying gold required a lot of work, bank vaults and time-consuming evaluations to ensure quality and genuine value.
The launch of advanced financial technologies (fintech platforms) makes gold more accessible and highly liquid, allowing a wider range of investors to buy, store, spend and send digital gold on secure online channels at the click of a button.
Gold, like cryptocurrencies, is an unregulated asset. While the gold price won’t triple overnight, you can sleep soundly knowing it’s stable and slowly rising. Hedged physical gold can also earn a yield. If you hedge physical gold those that make a market in it, including the banks, will pay you a yield simply because they trust in the overall value.
Another modernising factor is that gold is becoming a more sustainable option now that most of the earth’s gold is already in circulation. BBC News reported that around 80% of the Earth’s gold has already been mined and is in circulation.
Fiat currencies are constantly changing, shifting finance and banking trends as they go. Business owners and investors need to be on the lookout for more flexible, independent currencies like those available through gold and fintech.
Even small, long-term investments here and there will help to create a diversified investment portfolio to hedge against inflation and secure funds for the future.
If you are looking to add gold to your investment portfolio to safeguard your wealth, simply download the Nauggets app and start saving in gold today.