We've been a bit spoiled over the last couple of decades because inflation has been relatively tame. The first thing to remember about inflation is that it is primarily a loss of purchasing power. That means that to keep up with inflation, you need to have "more money" in other words, with 7.5% inflation, you have to have $107.50 next year to be able to buy the same thing you could buy for $100 this year. So the first rule of inflation is "don't lose purchasing power". But unless you can earn at least 10% on your money, you are probably losing ground. Why 10%? Because you still have to pay taxes on your gain. If you invest $100 and make 8% i.e. $8 and then have to pay the government 20% … [Read more...]
How Foreign Currencies Act as an Inflation Hedge
One method investors can use to hedge against inflation is investing in a variety of foreign currencies. The key of course is which currencies you choose as an inflation hedge. You need to invest in those countries' currencies, which will provide you with better protection from exchange rate changes to be successful at hedging against inflation. Inflation in the United States has been relatively tame since the 1980s but it is currently at risk due to massive money creation by the FED via Quantitative Easing. However, inflation risk can be mitigated with the help of investment diversification. One method investors who are looking to protect their money against inflation would use is to … [Read more...]
3 Factors Causing the Current Gold Rally
A variety of factors affect the price of gold. Currently, many of them are combining to drive the price of gold to all-time record highs. Let's look at a few of the factors that affect the price of gold. 1) Uncertainty- Gold is a Crisis Hedge We have said this many times over the years but it bears repeating again gold is more of a crisis hedge than an inflation hedge. When uncertainty rears its ugly head... gold does well. That uncertainty can take many forms and one of them is "monetary uncertainty". So if people don't know what the value of their money is going to be in the future (i.e. inflation) they will shift some of their assets to gold (driving up the price of gold). So as far as … [Read more...]
5 Reasons to Invest In Gold
Gold has a long history that goes back to thousands of years. As we said here, "Gold came in common use in 3000 B.C. when Egyptians started making it into jewelry. It wasn’t until years later that gold began being used as a medium of exchange." It has cultural significance in most parts of the world. Throughout most of this time, gold was money. Paper or "fiat currency" did not exist until fairly recently. However, today the investment trends in gold have changed. Now, people invest in gold mostly for economic reasons. Investors all around the world buy it because they see gold as an inflation hedge. Here, in this blog, we'll discuss five important reasons to invest in gold right … [Read more...]
Using Forex to Hedge against Inflation
Forex Hedge According to Wikipedia-A foreign exchange hedge (FOREX hedge) is typically used by companies to eliminate or hedge foreign exchange risk resulting from transactions in foreign currencies. In other words, if a company in based in one country most of its expenses are denominated in the currency of that country. So if a company is based in the U.S. most of its expenses are in dollars. But if it sells a significant portion of its products in another country like Mexico then a portion of its income will be in Pesos. If the Peso depreciates against the Dollar the value of their income could cause them to lose significantly even though they thought they were selling at a profit. This … [Read more...]
Soros Sells Gold- No Longer Fears Deflation???
When I think of using gold for asset protection I think of it for protection against inflation. But obviously, according to the WSJ, I am all wrong (or maybe not). According to a Wall Street Journal article, billionaire George Soros sold his $800 million stake in precious metals in the first quarter of 2011 saying that he "no longer fears deflation". What? With inflation climbing, I can see why he no longer fears deflation... but why would he buy gold to hedge against deflation, in the first place? … [Read more...]