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A reduction in living standards in the West has been obvious for some time now. This is the reason why many investors have so much confidence in the prospects of the safe haven gold and silver bullion bars and coins.
The expansionary monetary policies that western governments used when they voluntarily locked down their own economies when the coronavirus was first discovered, as well as when their own sanctions on Russia caused energy prices to boom has led to a residual high level of consumer price inflation because of how governments increased the amount of money in the system.
British and European investors are battling to protect the value of their wealth against inflation that has arisen through currency debasement. More individuals are investigating the prospect of investing with reputable gold and silver bullion companies such as Auronum to secure bullion bars and coins to preserve their wealth.
The US likely has the worst of its inflation problems to come given how the US still holds reserve currency status. However, the US dollar is falling as gold and oil are rising. These are bad signs for the US economy as it signals stagflation which is stagnant economic growth with rising prices in the economy. Soon US treasury bonds will follow the dollar lower, meaning that long-term interest rates will rise as inflation strengthens and the US economy weakens.
Usually, higher interest rates are a bad sign for gold and silver bullion, but if interest rates are only rising because of continued increasing inflation then gold and silver could easily outperform other assets. Many market participants are making the mistake of thinking that higher interest rates are bearish for gold and silver prices because the rate of inflation is rising faster than central banks are putting up their base interest rates.
Interest rates impact gold bullion prices because when the risk-free interest rate is higher than the rate of price increases, gold investors will do better by selling their gold coins and bars to put their cash on deposit. However, when the cash that is earning interest is devaluing at a faster pace than the interest rate can offset, investors are better off keeping their wealth in gold bullion.
In past decades the central bankers have raised interest rates higher than the rate of inflation which has caused inflation to fall and has weighed heavily on the price of gold. However, the west has lived beyond its means for years. Governments, corporations, and households have high levels of debt, and this debt burden increases as interest rates rise.
Central banks, therefore, are unable to raise interest rates high enough to contain price rises because this will cause the cost of servicing debt to be higher than what can be sustained. A situation that is likely to outturn is that central banks allow inflation to run hot for several years. There are several reasons for this.
Firstly, the central banks are unable to raise interest rates to levels required to contain inflation even if they wanted to because it would cause an economic depression. Secondly, high levels of inflation erode the real value of debt. Given how indebted governments and households have become, allowing inflation to run hot for several years will in effect be an implicit bailout because the economy, prices and wages will eventually reset at a higher price level.
The difference will be that debt payments are now a much lower proportion of income levels now that these have been increased by inflation. Debtors will benefit from this as their incomes will rise due to inflation but the amount that they owe remains the same. Cash savers, however, will see their wealth destroyed. Gold and silver coin and bars will be revalued higher and thus will protect the purchasing power of the bullion investor.
US national debt was around $10 trillion in 2000, it is now over $31 trillion in 2023. To service this debt, the US will eventually need a large US Dollar devaluation which, by extension, will be a gold price revaluation. This can happen in one of two ways, firstly the revaluation can occur through market forces which is currently being observed with gold prices going up back to previous record highs of around $2,000 per ounce.
We can also see a gold revaluation which is planned and organised by central bankers. This has been done before in the 1930s in which the US devalued the dollar. For those analysts that understand the present economic situation it is obvious that western currencies will see a continuation of their decline on global foreign exchanges which will lead to a sustained rise in commodities.
This will mean that western consumers will be priced-out of consumer good markets, leading to energy being expensive and increasing the proportion of incomes spent on food which is observed in low-income countries.
Investing in gold and silver bullion is a way of insulating oneself from this impending currency depreciation and explosion in consumer price inflation because gold and silver bars and coins will likely go up with the other commodities that are essential to the consumer such as cotton, oil, gas and meats.
The western governments can do very little to reverse the decline of their economies as years of excess has led to a very large debt burden which will begin to have an overwhelming impact on the currencies. Western investors should buy assets that their respective governments cannot print, the easiest to access and most obvious of these being gold and silver coins and bullion bars.
