Regular readers know that I favor holding gold when inflation is a perceived threat. Gold is less an investment than a store of value, a means of retaining purchasing power. Gold is not an investment with which to make money. It is a means of protecting money you already have.
There is no certainty regarding an outbreak of inflation of hyperinflation. These are not economic events even though many consider them such. They are outcomes initiated by political action(s). Inflation and hyperinflation are everywhere and always political events.
It has been said that to believe in gold is to distrust politics and politicians. While I have always distrusted politicians, I have not always owned gold. Only because I believe inflation is likely do I use gold as a hedge against a loss in the purchasing power of cash. Nothing can destroy a nest egg or a society faster than high inflation. Hyperinflation is devastating.
Jeff Clark describes what hyperinflation was like in Weimar Germany and how gold performed:
The most famous case of hyperinflation is the one that occurred in Germany during the Weimar Republic, from January 1919 until November 1923. According toInvestopedia, “the average price level increased by a factor of 20 billion, doubling every 28 hours.”
One would expect gold to fare well during such an extreme circumstance, and it did – in German marks, quite dramatically. In January 1919, one ounce of gold traded for 170 marks; by November 1923, that same ounce was worth 87 trillion marks. Take a look.
(Click on image to enlarge)
Inflation was at first benign, then began to grow rapidly, and quickly became a monster. What’s important to us as investors is that the price of gold grew faster than the rate of monetary inflation. The data here reveal that over this five-year period, the gold price increased 1.8 times more than the inflation rate.
The implication of this is sobering: while hyperinflation wiped out most people’s savings, turning wealthy citizens into poor ones literally overnight, those who had assets denominated in gold experienced no loss in purchasing power. In fact, their ability to purchase goods and services grew beyond the runaway prices they saw all around them.
The level of inflation experienced in Germany is incomprehensible to most Americans. Will it occur here? At this stage no one knows. There is nothing unique about the US that makes it immune to what happened in Germany. Whether it occurs here or not depends entirely upon what the politicians do. Based on their history and character, there is little reason to be optimistic.
Gold is not a solution to investing problems. It is an insurance policy against an inflationary explosion. The higher the probabilities of inflation, the more gold I hold.
HappyinHowell: 
Mr Misno: 
Marsha: 
Brian Wilson: 
Steve: 
Larry Crouse: 
Brian Wilson: 
Monty Pelerin: 
Bob Snyder: 
Syrin:
Gold looks like a burst bubble to me. Its price got so high and so fast that it is very dangerous to buy it now. It is like a missed train for me. However, if the price starts to climb again and breaks the resistance lines then I might reconsider. Surely US would make more QE with so high debt level but who knows where the money would flow next time. Gold isn’t a commodity that is necessary for living so I guess other commodities have a better chance for the rally next time.
Essentially, all fiat currencies are headed down the same path. They might not all turn into confetti at the same time, but they all will end up on the pyre of fiat currencies.
Precious metals or any other tangibles in which to preserve one’s wealth are key to keeping one’s financial assets alive during the upcoming collapse.
Arguably, the US dollar is even more susceptible to hyperinflation if only because of what currently inoculates it from hyperinflation: its status as the world’s reserve currency. When that status is finally rejected, then very bad inflation will be the inevitable result, as all the excess currency currently absorbed in the world markets and world central banks, etc., will come flooding back, worthless and diluting further the current money base in the United States. I think the US dollar is very unlike the Weimar Mark in this regard. So, it is probably very difficult to predict how bad things could get.
It is easier to handle your assets in normally inflating fiat currencies like the Canadian loonie, where zero percent interest rates are devastating the value of our currency–but at least we don’t have to worry about a overnight rejection of the currency.