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The world is in a delicate state – we can all feel it. A recession is all but assured as the Federal Reserve gears up to fight the very inflation that their monetary policy over the past few years has created and, as usual, the ones who will feel it the most will be us. The working class. Specifically, those of us who are either in retirement already, or are reaching the coveted mark in the coming years.
While there are signs that point to this downturn being more severe than any that have come before it, it is at the very least, likely to follow the trends of past cycles. Where if one can weather the storm, they are likely to come out on the other side in a similar position as they went in or better. But anyone planning on cashing out a portion of his or her investment portfolio in the next 5 years or so is doomed to “lock in” any losses.
After years of unprecedented increases in the money supply, inflation is finally rearing its ugly head. Putting the Fed on high alert despite their initial dismissal of the situation they were creating.
With several situations unfolding at once – like the Russia-Uraine conflict, U.K.'s economic crisis, and the looming Real Estate crash in China – tensions are running ever higher.
Covid-19 and the spectacle at Suez Canal showed us the fragility of the current global trade system. Sending shocks throughout the system that are still being felt today.
Stocks and Bonds are experiencing a simultaneous bear market. Leaving less places than ever to park your money as we governments fight inflation.
One of the demographics that are slated to feel this economic strife more strongly than the average person, are divorced and widowed women over the age of 65. Retired women will be facing a situation where they have to manage their finances, perhaps for the first time since getting married, through extremely turbulent times. A prospect that many of us have feared for most of our adult lives.
So, what is the solution? When the US Dollar is losing value and Stocks and Bonds are both on the decline, where does one turn to preserve the wealth that they have accumulated over decades of work? I believe the answer to that question remains the same that it has always been in the history of human civilization:
Gold holds its purchasing power due to its fundamental scarcity. A finite asset that cannot be manufactured by any central power and is naturally resistant to manipulation.
As prices go up and things become more expensive, it is easy to miss the hidden dynamic that is responsible behind-the-scenes. Things aren't becoming "more expensive", the Dollar is constantly losing value.
The Dollar is an inherently inflationary asset designed to lose value over time. Making it a terrible long-term investment for anyone who wants to maintain the value of their money.
Diversification has long been understood to be the key to predictably managing financial risk. Gold is the asset that experts turn to when they want to add security to their portfolios.
In 2019, the Bank of International Settlements (BIS), also known as the Central Bank of the Central Banks, reclassified Gold as the only other Tier 1 Reserve Asset alongside the US Dollar and Treasuries. Central Banks around the world are now treating Gold with the same level of faith as the Dollar – a riskless asset. Something that has not happened since 1944, when Gold was designated a Tier 3 Asset that could only be calculated for 50% of it's value on their balance sheets undermining their ability to transact internationally. With Gold's upgrade to Tier 1 status, Central Banks now deem the asset as good as cash.
Starting in 2017, the German Bundersbank Bank, the Bank of Austria, the Bank of Hungary, the Bank of Turkey, the Czech National Bank, and the Deutsch National Bank have all requested back their gold from the Federal Reserve and the Bank of England. These Central Banks, among others across the globe, have been accumulating gold at a rapid pace in the last 6 to 7 years. In fact, according to the World Gold Council, Central Banks bought more gold in 2018 since the dissolution of Bretton Woods in 1971.
