3 Ways Gold Can Protect You Against a Crashing Economy

Although stock markets seem to have shrugged off the coronavirus and its effects on the US economy, there’s no doubt that the economy is in the midst of a recession that could become a depression. The V-shaped recovery has failed to come to fruition, and millions of Americans remain panicked, afraid that they or their loved ones might fall victim to the coronavirus.

With nearly one-third of US households owing either rent or mortgage payments, and half of homeowners having considered selling their homes as a result of financial difficulties, the financial status of tens of millions of Americans is growing more dire by the day. That belies the high-flying numbers seen in stock markets, and indicates that the worst of the recession is yet to come.

Against that backdrop, many investors are worried about the health of the economy, with those nearing retirement worried about how to protect their retirement savings. With a stock market crash all but certain in the future, given the tremendous drop in GDP that occurred in the second quarter, many investors are understandably wary about remaining invested in stocks.

Thankfully there are ways to protect your retirement savings against the likelihood of a stock market crash, including investing in gold. Here are three ways gold can protect you against a crashing economy.

1. Gold Is the Ultimate Store of Value

There’s a reason central banks not only don’t get rid of their gold holdings, but have actually been adding to them in recent years. That’s because no matter how hard central banks try to convince people that fiat currency is here to stay, deep down they realize that gold is the ultimate money.

Gold’s characteristics long made it an ideal monetary metal: it is durable, portable, divisible, and uniquely identifiable. But while gold benefited consumers and businesses, offering them stability and a constant source of value, it was a restraint on the ability of governments to spend money.

Governments throughout history have sought to eliminate restrictions on their ability to spend money. They can only raise taxes so far before tax evasion becomes rampant. And they can only borrow as long as they can find buyers for their debt. But by eliminating the gold standard and forcing unbacked paper money on their citizens, they thought they had finally found monetary nirvana.

Unfortunately, the past half century of unbacked paper money has demonstrated what exactly goes wrong when governments are allowed to create money ad infinitum. Prices rise, the purchasing power of the currency decreases, and mountains of debt threaten to crush the economy.

Central bankers are scared to death of what will happen when the fiat currency system collapses, and that’s why they’re buying more gold than ever before. Rather than suffer the consequences of their monetary creation, even they understand that when paper money fails, gold will reassert itself as real money.

2. Protection Against Inflation and Currency Devaluation

Because of central bankers’ monetary inflation, prices throughout society have risen exponentially. Take a look at the government’s own CPI numbers for yourself if you don’t believe it.

Notice that there’s an inflection point, after which growth begins to rise significantly. That’s August 1971, when President Nixon closed the gold window, thus severing the last official link between the US dollar and gold.

From that point on, the Fed had no limits as to how much money it could create, and US consumers have suffered the results of that. There are some experts who even claim that US official inflation figures significantly under-report actual inflation, meaning that the growth in inflation post-1971 is even worse.

In 1971, a brand new Ford Mustang could set you back around $3,400, while a 3-bedroom house might have cost $35-40,000. Fast forward to today, where prices for those same products are easily 10-20 times higher. And how has gold fared?

Gold was officially valued at $35 by the US government in 1971, although after President Nixon’s closing of the gold window the government officially changed the valuation to $42.22 per ounce. Gold’s market price was about $43 an ounce, whereas today it trades at close to $1,950, or 45 times higher. That’s pretty phenomenal performance when you think about it.

Gold’s performance has even outpaced that of stock markets, with gold averaging annualized gains of about 8.1% since 1971, while the Dow Jones and S&P 500 have averaged 7.3% and 7.5% respectively. Since 2001, gold has doubled the performance of stock markets, with annualized growth of 10.6%, versus 5.0% and 4.8% for the Dow and S&P 500. When it comes to protection against inflation and currency devaluation in an age of unbacked paper money, these numbers show that gold can’t be beat.

3. Growth During Weak Markets

One reason so many people decide to invest in gold is because of its reputation for performing well during market weakness. When stock and bond markets undergo upheaval and the economy begins to unravel, investors flock to stable and secure assets, and gold is at the top of their list.

The 2008 financial crisis was a prime example of gold’s ability to perform well during a weak market. While stock markets lost over 50% of their value from October 2007 to March 2009, gold gained 25%. And it went on to make even greater gains from there, not peaking until 2011, while stock markets struggled to regain the ground they had lost.

Investors who protected their assets with gold ahead of the crisis not only would have lost less money during the worst part of the crisis, they would have continued to make gains well afterward and still come out ahead of an all-stock investment portfolio even today. That’s how powerful an investment in gold can be.

Ready to Invest in Gold?

If you think you’re ready to invest in gold, there’s no better time than now. With a gold IRA, you can even roll over your existing retirement assets into a gold investment that offers the same tax advantages as your existing retirement accounts, only investing in gold rather than stocks and bonds. If you have investments you’re worried will lose money in the event of another economic crash, maybe now is the time to start thinking about rolling over your assets into gold.

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