Inflation is the massive increase in the overall prices for products and services in an economy for a certain period of time. When inflation gets worse, hyperinflation is formed, which is also referred to as inflation which has got out of control! In simple words, when a stupendously high rate of inflation is called hyperinflation.
This kind of period is basically signified by the destruction of the value of currency because the worth of money keeps falling. During a typical case of hyperinflation, the citizens of a country would lose confidence in its currency and the Central Bank and the Government is most likely to be struggling to bring back this confidence in the general public.
Hyperinflation is not a new phenomenon, it has occurred earlier in the past too. Most of the significant or major examples of this kind of inflation dates back to the early twentieth century. One of the most prominent examples would be the hyperinflation in Hungary or Weimar Germany back in the year 1923. As far as modern recorded history is concerned, Hungary takes the ‘crown’ for experiencing the worst hyperinflation till date. The second worst case of hyperinflation would have to be the one experienced by Zimbabwe in the mid 2000′s and stretching till the late 2000′s. During this case of hyperinflation, the prices used to double every twenty four hours and the society was almost consumed by this severe case of hyperinflation!
Gold and other precious metals is generally mentioned in case of inflation and hyperinflation — why is this so? What has gold got to do with this? Well, it is a well-known and time-tested fact that the purchasing values of gold and other precious metals is almost consistent throughout and they experience a slow rate of depreciation. Hence these items are considered to be a stable investment. Paper money, on the other hand, is considered to be unstable because its values are constantly fluctuating.
In case of hyperinflation gold comes into play because most of the governments around the world operate under the fiat monetary system. In such a system, the value of the paper money backed by the Government is decided by the Government itself! Therefore, because of this, the value of the money can get affected adversely, thereby generating very high rates of inflation. Of course it is quite apparent that the fiat monetary system has numerous major flaws, which is why the Governments rely on another system called the Gold Standard System.
This system is backed by gold in the sense that the paper money in question can easily be turned into gold when required. In other words, this implies the purchase of gold without the need to physically carry it around. The Gold Standard system is much more beneficial and advantageous as opposed to the Fiat system. If a country becomes a victim to inflation and hyperinflation very often then it would be advisable to adopt the Gold Standard System in order to keep these two processes under check. Studies have shown that countries using this system would rarely have an inflation that rises above 2%!
Most countries have their currency running on a gold standard. Such currencies are fully backed up with physical gold and are generally referred to as gold backed money. Countries using such currency value gold as the best unit of trade. For a country to grow its economy there must be a common unit of trade. However, it is common to find paper currency without gold in circulation. Whenever paper money is printed, it has a diverse effect on the economic stability of a nation since it alters the basic standards of trade.
Paper money destabilizes the economy of a country. Gold is considered precious since it is found in limited supply. Currency backed up with gold is valued highly on the international stock exchange market. Whenever paper money is manufactured, it instead weakens the ratings due to its poor quality. Furthermore, it results in overexpansion, inflation and total imbalance of the economy.
Paper money without gold is not valid for international trade. A country cannot survive on its own without gaining imports and giving away exports. It is therefore imperative that with paper money, there can never be flow of goods between two countries. Gold is always an internationally recognized standard since it has some value to it. This is why gold backed money has managed to facilitate international trade.
Paper money can result in an irresponsible government. Due to its simplicity, it is possible that any government can print it in bulk. Such actions from government institutions can possibly result in inflation. No constitution will be crafted to lead a country into inflation and economic crisis. With inflation, the prices of commodities will no longer be affordable and the cost of living will rise.
It also affects the overall value of gold backed money. Due to inflation, your country will have to pay more while exchanging their money into foreign currency. This affects trade and relations between countries. Paper money does not support saving too since it is valueless. Without savings, financial institutions cannot survive therefore destabilizing the country. This is the reason why countries running on paper money do not prosper.
With these threatening effects of paper money, most countries regard it to be totally unconstitutional. It is highly subject to damage by natural calamities such as fire and floods. Some countries however issue them only whenever there is a need. The currency can have fewer effects to the economy if the issuing is controlled. Gold backed money is the best currency to be utilized in a country for development purposes.
The process of inflation is defined as the reduction in the purchasing power of currency in a country. In other words, inflation can occur when the money introduced in the country does not match the assets that are held in the economy, which leads to the purchasing power of the money being held going down.
What are The Causes of Inflation?
There are various reasons that make this situation happen in a country. These include:
Unmatched increase in demand and supply of a commodity. When the demand for a commodity goes up yet the supply goes down, the price for the commodity will go up thus making the price go higher. This is called demand pull inflation. ·
Another cause of inflation relates to the increase in the cost factor of production of goods and services which make the price go higher. The main cause behind this is the increase in the price wage of employees, with the company adding some money to the products or services to cover up for this increment.
These two causes of inflation affect the economy in the same way. You will find that you spend more money than you used to do to be comfortable. This inflation will affect everyone in the country, making it hard for the economy to grow. The country will end up losing foreign investments because it will be harder for an investor to put money in a country whose competitiveness on the global market is low.
How Does Inflation Affect The Value of Gold?
When inflation occurs, gold acts as a hedge. This metal has proven stable in events of inflation. As inflation heats up, more and more people go for gold bars and coins as an investment. This means the demand of gold will go higher due to the increase in the demand.
Currency inflation is also one of the causes of changes in the value of gold. Gold has been used as a unit of currency since time immemorial, which means that if the currency rates go high, the rates of gold will move along with it. However, when the unit value of the currency reduces, the value of gold will go up.
Banks can also affect the value of gold in one way or the other. When banks buy or sell more on the market, the price of gold will change. If you are a trader who deals in gold, you need to be always on the lookout for effects of inflation so that you know when it becomes suitable to sell your gold
Gold has ceased to be just an ancient metal anymore. It is now a part of trades around the world. The main advantage of gold investing is that the metal’s value is always stable even during economic crises. There are various gold investing options that you can take up. It is good to understand these options because the knowledge will allow you to make the correct decisions.
Gold Bars and Coins
This is the easiest way to invest in gold. However, you need to be aware of how to know the quality of the bullion as well as understand the rules that govern the transactions. Go out and do your research so that you understand what is happening in the market. Get to learn the different types of coins that have been offered over the years and their value, which is based on the physical characteristics possessed by each.
Purchase of Shares
There are various gold mining companies that have floated shares to the public. You can buy shares in such companies as a way of investing your cash. You don’t have to be an expert before you get a credible company to invest in; all you need to do is to analyze the situation of that particular company so that you make sure you don’t lose your money. If you have done some business in gold before, then this is the best option because your experience will be a plus.
Stock Market Transactions
One of the most lucrative businesses in gold is buying stock and reselling it at a higher price. This assures you of getting more returns, but you must put in a lot of effort and always be updated about what is happening in the market. If you are not sure about your skills on the market, you can enlist the services of stock market professionals to handle the work for you.
The government has come up with another option of investing your retirement benefits. The aim is to make sure that you have a steady flow of income even when you are no longer on the payroll. The plan requires you to open an IRA account that will serve to hold your investments. The main benefit of such an account is that you get to move in and out of the gold stocks without having to pay tax on capital gains. However, you need to always be on the lookout for the change in value of gold on the market.
Gold is increasingly becoming one of the most sought after investment options for most people. If you are looking for a way of protecting your portfolio from forces of inflation then you may consider buying gold coins. However, before jumping right on, you need to know how to purchase gold coins as well as the available investment options. This way, you will be able to make prudent decision and realize your investment goals.
Types of gold coins available for investors
There are two main types of gold coins that you can invest in: bullion coins and collector or numismatic coins.
Most investors tend to put their money on gold bullion coins as their prices are very transparent. The price of gold bullion coins are usually based on the market price of physical investment grade gold.
Collector or numismatic gold coins, on the other hand, are generally purchased by coin collectors and their prices tend to be subject to several factors outside of the market prices. Much like fine art, true numismatists are coin enthusiasts who specialize in perfecting their coin collection trade. These collectors typically have years of expertise and experience in rare gold coin collection.
Why you need to invest in gold coins
There are many benefits that you can realize from investing in gold. Regardless of the form you opt for, the benefits are similar. Here are some of the benefits of investing in gold coins.
Unlike other forms of investment, including currency and stock markets, gold has proven to be much stable against inflation and economic problems. During the recent economic meltdown, gold, and other precious metals, have remained the most stable forms of investment. While the values of currencies have crashed, that of gold has remained unchanged, if not higher. In addition, the effects of inflation on gold have remained generally negligible based on exchange rates.
The rise in gold’s value can be linked to the constant demand for the commodity due to its use in a wide range of industries and products. These include arts, jewelry, coins, medicines, dentistry, electronics, space projects and even manufacturing plants. For centuries, gold has always been a valuable metal, and its demand has never changed. Thus, one of the benefits of investing in gold with respect to demand is the constant appreciation in its value.
Gold coins are tangible items. You can store your coins personally at the safety of your own home. Better still, you can opt to store your coins with the financial institution that offer security for valuable items like gold and other precious metals. You can also have your bank keep your coins safe for you.
This is only applicable to physical form of gold like coins. Those who own gold coins can be able to privately keep their assets away from the public eye. This is because unlike stocks and bonds that require declaration to the federal government, you do not need to declare your gold coins to anyone.
Buying gold coins safely
You can purchase gold coins in numerous ways, including but not limited to buying them online from websites like eBay as well as other reputable dealers. You can also buy gold coins from the coin shops in your area. Additionally, you can opt to purchase gold coins directly from banks and other commercial institutions that deal in precious metals.
When purchasing gold coins, always look into any differentiators that some gold coin sellers may have over others. The seller with the lowest price is not always the best choice. Thus, as an investor, you need to take into account the value of the coins, not merely the price, when buying your coins.
Regardless of the gold seller you settle for, be sure to verify the company’s reputation through third party platforms like the Better Business Bureau (BBB). It is important that you do business with trusted, certified and reputable dealers who enjoy positive peer reviews. In short, look for these traits when choosing a gold coins dealer: size, experience, reputation, ethics and guaranty. In addition, find out if the dealer has any restrictions such as minimum amounts as well as accepted modes of payment.
Seeking professional help
When investing in gold coins, it is important that you consult professionals, especially if you are a novice. Assistance by professionals can help you set the right investment goals. In addition, these professionals can help you identify gold coins that best suits your investment goals.
Gold is one of the most viable investment options that you can ever consider. Knowing how to purchase gold coins can let you diversify your investment portfolio and grow your wealth. Better still you can learn how to build a collection of gold coins that you will enjoy. Regardless of the types of gold coins you opt for, working with a professional can help you make the right decisions and realize your investment goals. Remember, there are many different types of gold coins out there and the last thing you want is make a daft decision and lose your hard earned money.