Why Gold & Silver Are the Best Hedges Against Runaway Inflation

Why Gold & Silver Are the Best Hedges Against Runaway Inflation

If you’re like most people, you may have a faint recognition that some individuals invest in gold and silver as hedges against inflation. Hedging is somewhat of an abstract concept, so exactly what does that mean? Additionally, you may wonder if there’s truly something that you can do to ward off the effects of inflation.

Let’s start by taking a look at the current state of inflation and what is meant by a hedge against inflation. After that, we’ll dive into how this information applies to gold and silver inflation hedges.

What Is Inflation?

The concept of inflation is based on the fact that money tends to lose its value over time. Inflation refers to a situation where prices are rising and the purchasing power of money is falling. We’ve all heard of inflation and felt its effects. In fact, the U.S. government, which ironically indirectly causes inflation through the Federal Reserve, has created an investment product referred to as Treasury Inflation-Protected Securities (TIPS) to hedge against inflation.

5 Facts of Inflation

In a nutshell, inflation is caused by an increase in the money supply, which is controlled by the Federal Reserve. While monetary inflation is nearly always present, as is evidenced by the Fed’s current balance sheet of $8.4 trillion, it doesn’t always immediately show up in the form of price inflation. However, as we’ve seen so far this year, monetary inflation is beginning to translate into price inflation, which has many consumers concerned.

Current State of InflationCPI Shadow Stats

Maybe you’ve had conversations with elderly family members who quoted what seemed like ridiculously low prices. Prices they paid for daily necessities when they were younger and throughout past decades. Now, the idea of paying 12 cents for a loaf of bread seems incredible, but in the 1950s, it was the norm. Today, that same 12 cents would buy you precious little; possibly a piece of hard candy, if you’re lucky.

According to Consumer Price Index inflation calculator figures, you would need $21.95 to buy today what you could have bought for $1 in 1800. Keep in mind that these are official government figures, and are likely well below actual inflation.


If inflation was calculated today as it was in the ’70s and early ’80s, we would likely see official rates at nearly double the current reported figures. John Williams from Shadow Stats shares how the factors used to calculate inflation rates have changed over time.

Pandemic Effects on Inflation

The pandemic and the stimulus checks that were issued during the lockdown has created an economic environment where inflation tends to rise. With supply chain problems, worker shortages, and fewer people out supporting local businesses, consumer prices have skyrocketed. In fact, the economic situation has been so out of control that, according to Kiplinger’s forecast, inflation will reach a 30-year annual high rate of 6.6% by the end of 2021.

California Port, Container Ship Backlog
California Port, Container Ship Backlog

While the same forecast included data showing that 2022 will likely see a lower inflation rate, it will still be higher than its historical 10-year average. In short, high inflation seems here to stay, at least for a while. The Federal Reserve may respond by raising interest rates to try to curb inflation, but it’s unlikely that will put a complete end to the inflation. Furthermore, the Fed runs the risk of sending the economy into a recession by raising rates.

What Is a Gold or Silver Inflation Hedge?

Now let’s specifically discuss hedging. What is a hedge against inflation? A hedge is an investment that protects your assets from the losses that come with rising inflation.

It’s a safe haven asset where you can hold onto the value of your investment or maintain your purchasing power as dollars lose value. Your cash dollars are almost certainly going to continue to be worth less with each passing year. Although the rate of inflation does vary, the general direction rarely does.

However, when you exchange those dollars for something that has historically risen in value over time, then you can avoid the losses that come with inflation. Barring an unexpected deflationary crisis, inflation will continue and the value of your cash will go down in value.

But what about the stock market, including mutual funds and exchange-traded funds? The truth is that your stock returns can also be affected by inflation. Imagine that you invested in stocks. For example, if the stock market went up by 5%, which isn’t a horrible return, you’re still losing money in real terms if the inflation rate is 6.6%.

However, if you invest in an asset class, which has historically served as a hedge, such as physical gold and silver, the devastating effects of inflation are reduced, if not eliminated. We specifically recommend physical metals as opposed to paper contracts, such as the iShares silver trust fund (SLV), as most paper contracts are highly levered and don’t permit retail investors to settle their contracts in physical gold and silver.

As the dollar goes down in value, the value of gold rises. Considering that dollars, in theory, are infinite, and gold is finite, it takes more money to purchase an ounce of gold as inflation rises. As David Meger, director of metals trading at High Ridge Futures, explained, the current inflationary environment will cause the future price of gold to rise.

Therefore, instead of multiplying your losses, you have an investment that increases in value over time. Do you need dollars for everyday expenses? If so, you can sell your gold, and it will be worth more dollars than when you bought it, essentially eliminating the effects of inflation.

We’re reminded of the old adage that an ounce of gold in the 1920s will buy you the same nice men’s suit and shoes as it does today. The $20 that it would have cost at that time to purchase a suit may only be enough to buy you socks today!

Gold, Silver, and Inflation Hedging

Buying gold and silver for an inflation hedge is a smart idea. Considering what Meger, director of metals trading at High Ridge, said about the future expected trajectory of gold, now is the perfect time to add gold to your precious metal portfolio.

As high inflation rates continue, it’s a good time to heed the words of the director of metals trading. However, while Meger was focused on gold, he no doubt sees the value of silver as an inflation hedge as well. Here’s how you can benefit from gold and silver as inflation hedges.

Benefits of Investing in Silver

Silver prices have also gone up historically. Although silver prices are more volatile than gold, silver is also much more affordable for most investors. Not only is silver used as an investment metal, but it’s always in demand for industrial uses, including electronics, batteries, dental materials, solar panels, and even medicine.

Why Silver Matters

With this great demand, silver will always be needed for practical purposes. Yet, silver also has the allure of a precious metal. Investing in silver bullion is incredibly easy, as you can purchase it in the form of coins, bars, or rounds in increments of an ounce or less, or in bulk, such as a monster box of American silver eagles. Silver can also be invested through a self-directed IRA or a solo 401k.

For those interested, we discussed in a previous article if American silver eagles or Morgan silver dollars are a better hedge against inflation.  You might be surprised with our findings.

Benefits of Investing in Gold

Because gold prices tend to rise at a slower, steadier rate, buying gold makes more sense as a long-term safe haven. This hedge against rampant inflation will protect and build your wealth over years and decades as the price of gold inevitably rises. As with silver, you can buy gold to add to your precious metals IRA, gaining both tax advantages and greater security in these changing times.

By November 2021, gold had reached a price of $1,800 per troy ounce. Fed chair Jerome Powell responded by saying the central bank needs to begin reducing its asset purchases. The taper has begun, with the goal of eliminating bond purchases by the summer of 2022. However, it will be interesting to see if the Fed can stave off a recession before “lift-off” considering that the market is addicted to cheap money.

Gold vs Inflation

As always, over time, the price of gold will outpace the value of the dollar. In addition, according to Kitco, gold is better for diversifying your portfolio because its price is mostly unrelated to the other major asset classes, including stocks. When investing, a portfolio with a low correlation to one another typically results in lower volatility with higher returns.

Where to Find Precious Metal Experts

Are you thinking of creating your own hedge against inflation? If so, you can get the advice, assistance, and precious metals products you need from Atlanta Gold & Coin Buyers. Whether you are buying or selling gold or silver bullion coins or any other precious metals products, we have the expertise and connections to help you get started in the most advantageous way. Contact us today to learn more about opportunities for gold and silver as inflation hedges.

Tony Davis
Tony Davis