What Could Happen to Precious Metals Prices During Hyperinflation?

Zimbabwean currency during hyperinflation

Hyperinflation is something that no one wants to experience. We all know about countries like Venezuela and Zimbabwe, where hyperinflation has ruined economies and destroyed people’s standard of living. And even the small taste of rising inflation we’ve received over the past few years has been enough to wake up many Americans to the dangers of inflation.

Hyperinflation seems like something that happens “over there” and never here. But what would happen if the US were to experience hyperinflation? How would that impact precious metals prices? And how would it impact your finances?

What Is Hyperinflation?

Hyperinflation is usually defined as a time when inflation exceeds 50% per month. That equates to an annualized inflation rate of nearly 9,000%.

So just because inflation is high doesn’t mean that hyperinflation exists. Argentina, for instance, where the annual inflation rate is over 100%, is not technically in hyperinflation, although an inflation rate that high is obviously wreaking havoc on economic activity.

Hyperinflation results when governments and monetary authorities decide to ignore economic laws and create more and more money out of thin air. This has happened over and over throughout history, but governments never seem to learn their lesson.

From Weimar Germany to Zimbabwe, governments and central banks that attempt to print their way out of fiscal dilemmas end up risking hyperinflation. We got a taste of high inflation in the US, after a 30%+ increase in the money supply has resulted in a nearly 20% rise in the official level of consumer prices over the past few years.

The Fed, inexplicably, seemed to think that prices wouldn’t rise after it boosted the money supply by such a massive amount. First it tried to say that inflation wasn’t going to happen. Then it tried to claim that inflation was only transitory. Then the Fed belatedly tried to fight inflation, a fight that’s still ongoing.

How Bad Has Inflation Gotten in the US?

The recent inflation we experienced, although much higher than over the past two decades, only peaked at 9%. In that respect, we got off easy.

During the stagflation of the 1970s, inflation rose to over 12%. And that wasn’t even the worst inflation the US has ever experienced.

During World War I the Fed doubled the money supply, and inflation peaked at over 23% year on year, the highest rate officially recorded. Thankfully it subsided after the war, but persistent inflation has been the name of the game for the past 100+ years.

That kind of inflation, even when it isn’t high, still erodes the value of your dollars. Since the Fed’s creation in 1913, the annualized rate of inflation has been 3.2% per year.

That seems relatively low, doesn’t it? But what it means is that it takes over $31 today to buy what $1 bought back then. That’s how even relatively “low” inflation can destroy the value of a currency.

Could the US Experience Hyperinflation?

Everyone thinks that hyperinflation is something that happens in other countries, not their own. But then when it happens, they don’t know what to do or how to protect themselves.

While the likelihood of hyperinflation is low, the damage done by hyperinflation can be immense. And failing to hedge against it could cost you dearly.

Hyperinflation and Gold

One of the questions that arises is what would happen to the prices of precious metals like gold and silver in the event of hyperinflation. Like the prices of most goods during a hyperinflationary period, you could expect the prices of gold and silver to rise during hyperinflation along with everything else.

But the prices of gold and silver could rise higher relative to the prices of other goods on the market. That’s because gold and silver have traditionally been trusted as stores of value and safe haven assets during times of trouble.

With a history of use in currency that dates back thousands of years, gold and silver could also become the currency of choice during a hyperinflationary period, at least if hyperinflation becomes bad enough that the dollar ceases to circulate.

During the Weimar hyperinflation, people who fared the worst were those whose assets were currency, or denominated in currency like bank deposits, or fixed promises to pay in currency, like pensions. But those who had gold or silver, or foreign currencies that were convertible into gold and silver, like US dollars or British pounds, fared much better.

In fact, the worst hyperinflation in history, that of post-war Hungary, was stopped after the government replaced their currency with a gold-backed one. And Zimbabwe, famous for the worst recent bout of hyperinflation beginning in 2007, has recently sought to bring about currency stability through the issuance of a gold-backed digital currency.

Gold may be seen in some circles as old-fashioned and outdated, but when monetary stability becomes crucial, gold remains a fall-back that people around the world continue to trust.

Gold and Your Financial Well-Being

While the risk of hyperinflation may be low, the risk of high inflation isn’t. We got a taste of that last year when inflation reached 9%. But while the Fed has made some progress at tackling inflation, inflation rates have bounced back up to 3.7% and could get higher in the future.

If the Fed ends up returning to quantitative easing to combat a future recession, it could end up increasing the money supply and bringing about another rise in inflation. In a worst case scenario, this decade could end up like the 1970s, where see-sawing inflation and economic stagnation resulted in dreaded stagflation.

The US economy isn’t out of the woods yet, and the return of stagflation could negatively impact millions of Americans. That’s where having gold and silver could come in handy.

During the 1970s stagflation, gold and silver’s annualized growth rates were over 30% per year over the course of the decade. If they were to grow at even half that rate over the next decade, owners of gold and silver would be ecstatic.

But it goes to show how powerful gold and silver can be in helping you to maintain your wealth and financial well-being during times of pervasive inflation.

If you’re looking to protect your financial security against inflation, gold and silver could be good choices for you. Whether you choose to protect your retirement savings with a precious metals IRA, or make a direct cash purchase of gold and silver instead, Goldco has options available for you.

With over 5,000 5-star reviews and over $2 billion in precious metals placements, Goldco prides itself on quality products and exceptional customer service. Give Goldco a call today to learn more about how you can help safeguard your financial future with gold and silver.


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