You might have noticed that the savings rates in banks are horrendous. Keeping cash is like setting fire to your money and watching it burn slowly. Let’s look at an example rate of 0.01 percent, which a lot of banks offer at the moment.
If you were to put in 10 000 dollars now and then take them out in 30 years, you’re going to have 30 dollars of profit. That’s insane. If the rate of inflation is 2.5 percent during that time, all of that money would be worth less than five grand. The world of economics is scary, and it gets even scarier if you don’t know how to preserve your wealth. Let’s take a look at the current state of the world.
Are we living in a bubble?
The biggest question that most people have is whether we’re living in a bubble. Almost everyone experienced the crisis of 2008 on their own skin, and that’s something that no one wants to live through again. Click here to read more info.
Unfortunately, this time it might be even worse. To answer whether the current state of the market is a bubble, we need to define what it is. Let’s look at a real estate example because that’s what happened 14 years ago. If everyone wants to buy a house, but there’s a limited number of houses, the price is going to increase astronomically.
At one point, the price will not be sustainable. That can last for a while, and then eventually, the market will balance itself out, and supply is going to meet demand. When that happens, the high prices pop and start to go down to the normal level. This is called a deflation period. In the meantime, everyone loses money.
This situation can happen when there’s too much credit given by banks. A lot of people need houses, but that doesn’t mean that everyone is going to use their savings to buy them. Instead, a lot of people go to the glass building and ask for a loan.
With the magical use of fractional reserve banking, new money is created and given to the people with the hopes that they’re going to give it back. Everyone wants to buy houses, apartments, tech stocks, or cryptocurrencies. The prices of the assets start to increase because now everyone has the money to afford them.
People get in the niche without understanding it, and only because they expect the price to go up. When the people who got in an early start to notice, they start to exit and leave everyone else empty-handed. They’ve taken the largest profits, and then the price starts to fall. Next comes panic and massive reselling of the assets.
Eventually, the prices go back to their original numbers, or they drop lower. In the previous crash, central banks interfered to save companies that were presumably too big to fail. The market was supposed to go lower, and yet it didn’t.
At the start of the pandemic, the entire world was supposed to go into recession, and it didn’t. Plus, everyone received a stimulus check for nothing. All of that money was spent on creating a new topic of interest.
How does gold come into the mix?
An interesting thing about gold is that there is a limited amount of it. That’s why it can never be in a bubble, even though it might look like it. Because the supply is limited, it’s completely different from things like derivatives, futures, options, stocks, or bonds.
This is one of the most important criteria when it comes to creating a crash. The second reason is that gold and silver are representations of money. You use the money to measure other things, not money itself. Dollars are inflationary since they can be printed at almost zero cost.
The same thing goes for digital money, which can be created in excess with the click of a button. Bitcoin is one of the few promising projects which have the potential for disruption, but the world isn’t advanced enough to be running on it. There are still power outages all across the state, and you won’t be able to pay for bread if there is no internet.
For that reason, it’s highly likely that the governments are going to vote for a hard representation of their soft currencies. You can go to Bullion Star review to read more. The reason why gold is so important is that there are thousands of years of history to back it up. Ancient Greek philosophers defined it as the only resource that can fulfill all of the criteria to be money.
First of all, it’s durable, and it can’t rot or be destroyed by natural elements. Secondly, it’s limited in quantity. Next, everyone in the world can recognize it with their own eyes. Sure, there are copies, but they can easily be noticed if you have a weighing scale and a meter.
It works as a store of value since it always goes up in price, you can move it from one place to another, divide it into smaller chunks, and you can transact with exact copies of it. The last quality is called fungibility. This means that you can exchange one ounce of this metal for another ounce. It’s completely interchangeable with itself.
How much of your portfolio should you allocate to it?
Most people want to go for bullion right away. Even if you have the money, that might not be the smartest option. It’s much better to go for a couple of ounces at first and then increase your holdings through dollar-cost averaging.
Getting a little bit each week or month is the best strategy because you average out the highs and the lows on the market. There are plenty of vendors that offer certificates with precious metal, and they’re minted into a form that’s easily recognizable by anyone. These investments last for decades, and that’s why you should also put some money into a safe storage option.