By Jeff Clark, Casey Research
The cheek of it! They raised the price of my favorite ice cream.
Actually, they didn't increase the price; they reduced the container size.
I can now only get three servings for the same amount of money that used to give me four, so I'm buying ice cream more often.
Raising prices is one thing. I understand raw-ingredient price rises will be passed on.
But underhandedly reducing the amount they give you… that's another thing entirely. It just doesn't feel… honest.
You've noticed, I'm sure, how much gasoline is going up.
Food costs too are edging up.
My kids' college expenses, up.
Car prices, insurance premiums, household items – a list of necessities I can't go without. Regardless of one's income level or how tough life might get at times, one has to keep spending money on the basics. (This includes ice cream for only some people.)
According to the government, we're supposedly in a low-inflation environment. What happens if price inflation really takes off, reaching high levels – or worse, spirals out of control?
That's not a rhetorical question. Have you considered how you'll deal with rising costs? Are you sure your future income will even keep up with rising inflation?
Be honest: will you have enough savings to rely on? What's your plan?
If price inflation someday takes off – an outcome we honestly see no way around – nobody’s current standard of living can be maintained without an extremely effective plan for keeping up with inflation.
It's not that people won't get raises or cost of living adjustments at work, nor that they will all neglect to accumulate savings.
It's that the value of the dollars those things are in will be losing purchasing power at increasingly rapid rates. It will take more and more currency units to buy the same amount of gas and groceries and tuition. And ice cream.
I'm not talking science fiction here.
When the consequences of runaway debt, out-of-control deficit spending, and money-printing schemes come home to roost, it's not exactly a stretch to believe that high inflation will result.
We need a way to diffuse the impact this will have on our purchasing power. We need a strategy to protect our standard of living.
How will we accomplish this?
I suspect you know my answer, but here's a good example. You've undoubtedly heard about the drought in the Midwest and how it's impacted the corn crop. The price of corn has surged 50% in the past two months alone.
Commodity analysts say the price could rise another 20% or more as the drought continues.
While the price of gold constantly fluctuates, you would have experienced, on average, no inflation over the last 30 years if you'd used gold to purchase corn. Actually, right now, it'd be on the cheap side.
When you extrapolate this to other food items – and virtually everything else you buy – it's very liberating. Think about it: gold continues its safe-haven role as a reliable hedge against rising inflation.
I believe that those who save in gold will experience, on average, no cost increases in the things they buy and the services they use.
Their standard of living would not be impacted.
I think this kind of thinking is especially critical to adopt when you consider that supply and demand trends for gas and food dictate that prices will likely rise for a long time, and perhaps dramatically.
So how much will you need to make it through the upcoming inflation storm and come out unscathed?
Like all projections, assumptions abound. Here are mine for the following table. I'm assuming that:
- The price of gold, on average and at a minimum, tracks the loss in purchasing power of whatever currency you use, and that it does so from current prices. Given gold's history, this is an easy assumption to make.
- Gold sales, over time, capture the gain in gold and silver so that your purchasing power is preserved. (This doesn't mean I expect to sell at the top of the market; I expect we'll be selling gold as needed – if gold has not itself become a widely accepted currency again.)
- We pay taxes on the gain. This will decrease our net gain, but there should still be gains. In the famous Weimar Germany hyperinflation, gold rose faster than the rate of hyperinflation.
To calculate how much we'll need, I looked at two components, the first being average monthly expenses. What would we use our gold and silver for? From corn to a house payment, it could be used for any good or service. After all, virtually nothing will escape rising inflation. Here are some of my items: groceries, gas, oil changes and other car maintenance, household items, eating out, pool service, pest service, groceries and gas again, eating out again, vitamins, movie tickets, doctor appointments, haircuts, pet grooming, kids who need some cash, gifts, and groceries and gas yet again. Groceries include ice cream, in my case. How many ounces of gold would cover these monthly expenses today?
And don't forget the big expenses – broken air conditioner, new vehicle, vacation… and I really don't think my daughter will want to get married at the county rec hall. How many ounces of gold would I need to cover such likely events in the future?
The point here is that you're probably going to need more ounces than you think. Look at your bank statement and assess how much you spend each month – and do it honestly.
The other part of the equation is how long we'll need to use gold and silver to cover those expenses. The potential duration of high inflation will dictate how much physical bullion we need stashed away. This is also probably longer than you think; in Weimar Germany, high inflation lasted two years – and then hyperinflation hit and lasted another two. Four years of high inflation. That's not kindling – that's a wildfire roaring through your back yard.
So here's how much gold you'll need, depending on your monthly expenses and how long high inflation lasts.
Every corn-based product on the grocery shelf will soon take a lot more dimes and dollars to buy. But wait – what if I used gold to buy corn?
| Ounces of Gold Needed to Meet Expenses During High Inflation | ||||||||
| Monthly expenses in US dollars | Monthly expenses in gold, oz* | Inflation Duration | ||||||
| 6 months | 1 year | 18 months | 2 years | 3 years | 4 years | 5 years | ||
|
$500
|
0.31
|
1.9
|
3.7
|
5.6
|
7.5
|
11.2
|
15.0
|
18.7
|
|
$1,000
|
0.63
|
3.8
|
7.5
|
11.3
|
15.0
|
22.5
|
30.0
|
37.5
|
|
$2,000
|
1.25
|
7.5
|
15.0
|
22.5
|
30.0
|
45.0
|
60.0
|
75.0
|
|
$3,000
|
1.88
|
11.3
|
22.5
|
33.8
|
45.0
|
67.5
|
90.0
|
112.5
|
|
$4,000
|
2.50
|
15.0
|
30.0
|
45.0
|
60.0
|
90.0
|
120.0
|
150.0
|
|
$5,000
|
3.13
|
18.8
|
37.5
|
56.3
|
75.0
|
112.5
|
150.0
|
187.5
|
|
$10,000
|
6.25
|
37.5
|
75.0
|
112.5
|
150.0
|
225.0
|
300.0
|
375.0
|
|
$20,000
|
12.50
|
75.0
|
150.0
|
225.0
|
300.0
|
450.0
|
600.0
|
750.0
|
| *Based on $1,600 gold price | ||||||||
If my monthly expenses are about $3,000/month, I need 45 ounces to cover two years of high inflation, and 90 if it lasts four years. Those already well off or who want to live like Doug Casey should use the bottom rows of the table. How much will you need?
Of course many of us own silver, too. Here's how many ounces we'd need, if we saved in silver.
| Ounces of Silver Needed to Meet Expenses During High Inflation | ||||||||
| Monthly expenses in US dollars | Monthly expenses in silver, oz* | Inflation Duration | ||||||
| 6 months | 1 year | 18 months | 2 years | 3 years | 4 years | 5 years | ||
|
$500
|
17.9
|
107.1
|
214.2
|
321.3
|
428.4
|
642.6
|
856.8
|
1,071.0
|
|
$1,000
|
35.7
|
214.3
|
428.5
|
642.8
|
857.0
|
1,285.6
|
1,714.1
|
2,142.6
|
|
$2,000
|
71.4
|
428.5
|
857.0
|
1,285.6
|
1,714.1
|
2,571.1
|
3,428.2
|
4,285.2
|
|
$3,000
|
107.1
|
642.8
|
1,285.7
|
1,928.5
|
2,571.4
|
3,857.0
|
5,142.7
|
6,428.4
|
|
$4,000
|
142.9
|
857.1
|
1,714.2
|
2,571.3
|
3,428.4
|
5,142.6
|
6,856.8
|
8,571.0
|
|
$5,000
|
178.6
|
1,071.4
|
2,142.8
|
3,214.3
|
4,285.7
|
6,428.5
|
8,571.4
|
10,714.2
|
|
$10,000
|
357.1
|
2,142.6
|
4,285.0
|
6,427.8
|
8,570.4
|
1,2855.6
|
17,140.8
|
21,426.0
|
|
$20,000
|
714.3
|
4,285.7
|
8,571.4
|
12,857.0
|
17,142.7
|
25,714.1
|
34,285.4
|
42,856.8
|
| *Based on $28 silver price | ||||||||
A $3,000 monthly budget needs 1,285 ounces to get through one year, or 3,857 ounces for three years.
I know these amounts probably sound like a lot. But here's the thing: if you don't save now in gold and silver, you're going to spend a whole lot more later.
What I've outlined here is exactly what gold and silver are for: to protect your purchasing power, your standard of living.
It's like having your own personal financial bomb shelter; the dollar will be blowing up all around you, but your finances are protected.
And the truth is, the amounts in the table are probably not enough. Unexpected expenses always come up. Or you may want a higher standard of living. And do you hope to leave some bullion to your heirs?
It's sobering to realize, but it deserves emphasis: if we're right about high inflation someday hitting our economy…
Most people don't own enough gold and silver.
If you think the amount of precious metals you've accumulated might be lacking, I strongly encourage you to put a plan in motion to save enough to meet your family's needs.
We have top recommended dealers in BIG GOLD, ones we've vetted that are trustworthy and have highly competitive prices. We also recommend a service that will deduct whatever amount you chose from your bank account and buy bullion for you automatically. And now, given how concerned we've been about the inflation that's coming, we've actually started our own service. You can check it all out in the current issue of BIG GOLD, risk-free. I can tell you that purchase premiums are incredibly low, due to a proprietary system that bids your order out to a network of dealers that compete for your business. We're already using it, and the response from other investors has been tremendous.
Whatever plan you adopt, my advice is to make sure you have a meaningful amount of bullion to withstand the firestorm that's almost mathematically certain to occur at this point. And now you know exactly how much gold you're going to need.
I definitely concur that it is important to use gold as an investment hedge, because as gasoline and food have shown us there is already plenty of inflation. The problem I see with physical gold is that there is really no way to redeem it for anything or use it for a medium of exchange. How are you going to buy anything with a bar of gold or even a 1oz coin? Will anyone be able to give you 'change' if you try to buy clothes or groceries or even a car with your gold? And if they are willing to change your gold coin, say for a suit you purchased for $700, it will probably be $'s you receive back as change or that suit will cost you the full oz coin, because they can't or won't give you change. If inflation get's out of control.......face it, as the average joe, we are all screwed!
With our total debt at 360% of our GDP, and with Europe and Japan in even worst shape, it will
be a long time before inflation is our problem. Multiple conversions in our energy needs to plentiful, cheap, natural gas will also lower our demand for expensive O.P.E.C. oil. Potential new reserves in the GOM will be another economic blessing to add to the shale oil and gas developments over the U.S. Our rapidly growing new energy reserves could be a big factor in the long term economic recovery of our Republic.
GOLD is and will be the 'best' hedge for the inflation around the globe.
-------What I’ve outlined here is exactly what gold and silver are for:
to protect your purchasing power, your standard of living.-----------------
Governments and others cannot increase the supply like with Oil. There is NO on/off spigot to stop price appreciation. There is no better protector of your money than GOLD --- none that we know.
GOLD is king, not the banks.
GOLD rules, not the shieks.
Good luck with Gold. Always has been here for a hedge against money printing.
Buy GOLD today at $1,700. per ounce. Soon enough the price will double again...
Andy Jackson claimed that paper money would lead politicians to print too much of it and inflate it into nothing. Smart man, Jackson. It would bother him to know that his mug is on the twenty.
"According to the government, we’re supposedly in a low-inflation environment."
Then government officials should have no complaint about being put on a fixed-dollar diet in prison
ha ha, silver is already going for $4 more per ounce/ gold for $100 an oz more than the baseline price! kind of makes the point.
and yes, buy physical gold, no, don't store it with a bank/brokerage that could "borrow it", i.e. exchange it for a paper certificate, and *not* return it, especially if they go belly up (and our corrupt court system continues with decisions that don't recognize the legal necessity of treating allocated accounts for what they are, e.g. the recent ruling in the Sentinel case).
Consider MFGlobal and realize that some very big banks will fail in the near future (think Morgan Stanley), and that they will surely take/steal (not rehypothecate) hundreds of thousands of private accounts when they go down. That is their M.O. You think inflation is bad? How about outright theft that is backed by the courts? How about 40,000 tons of gold already stolen from allocated accounts?
And for those investors who already have a couple hundred million or even a few billion $$ in bullion tucked away somewhere, have you checked the serial numbers on your bars lately?
(hats off to Jim Willie, the Golden Jackass)
Buying is one thing. Selling it, is something else. When inflation really kicks in, there will be plenty of price gouging when people try to get inflated dollars for their gold. This is much like the price gauging for gasoline when a major hurricane comes through.
Good points in the post. However, if the scenarios above play out, a potential outcome is for the government to confiscate gold and maybe even other precious metals for a set price. It's been done before...
Yes, good point about the confiscation. Seems hard to know what the limits to corruption are or will be these days. I would wonder at what point non-compliance would set in. Lots of people here believe in the right to bear arms and they tend to be those who purchase precious metals. Good luck getting them to turn in either one!