With inflation rising faster now than policymakers in Washington had expected, many investors are starting to get nervous. Trust in the Federal Reserve to manage monetary policy, and in Congress to moderate spending, is slipping. Many people are starting to anticipate a market correction if not an outright crash, and they’re starting to try to front-run things, getting their money out and safely protected before the downturn.
Safeguarding assets can be as much art as science sometimes, as you have to have a sense for what assets will gain value and when. But there are at least some general principles that are time-tested.
Among those is the idea that precious metals such as gold and silver will generally perform better than stocks during times of economic turmoil. When stock markets collapse, investors flee to safety, and gold and silver have traditionally offered that safety.
Even when gold and silver are affected by a general downturn, their losses normally aren’t as severe as stocks, they recover their value quicker, and they go on to outperform stocks. Let’s remember the 2008 financial crisis, when stock markets peaked in October 2007 and hit their lowest point in March 2009. Even though gold lost value at times during 2008, its overall gain of 25% during that 2007–2009-time frame was far better than the 50% losses suffered by stock market indexes.
Today there’s a new competitor in town: cryptocurrency. Bitcoin and competitor cryptocurrencies were born from the ashes of the financial crisis, with their creators vowing not to repeat the same mistakes that monetary authorities made through their policies of quantitative easing.
The purpose of Bitcoin and similar cryptocurrencies was to provide stable currencies that couldn’t be inflated into oblivion like the dollar and other fiat currencies. With a strictly controlled limit on production, there is no chance of creating more bitcoins once the 21-million-coin limit is reached. Unlike the dollar, whose value and purchasing power has decreased by 98% since 1913, each unit of Bitcoin is supposed to gain in value over time.
In that way, Bitcoin is intended to operate as a type of digital gold. And many of Bitcoin’s earliest disciples claimed that Bitcoin could even be superior to gold. But is that true?
Gold, Crypto, and Price Volatility
One of the many advantages of gold is its price stability over time. So many investors love to hold gold because of that stability. When stock markets are booming, gold can do well. And even when gold has lackluster periods of growth, it still never sees the types of losses that can plague stock or bond markets.
Over time, the price trend for gold is ever upward too. Compare the gold price today to its historical prices and you can see that over the past 50 years it has provided performance similar to those of stocks. And over the past 20 years its performance has even surpassed that of stock markets.
Cryptocurrencies have seen explosive growth in the first decade after their creation, with Bitcoin experiencing a 9,000,000% gain in its first decade. Many first adopters made a lot of money, and the prospect for potential gains has lured many investors into the cryptocurrency sphere. But one of the major drawbacks to cryptocurrencies has been their tremendous volatility.
Bitcoin hit an all-time high of $64,000 earlier this year but is currently trading for about half that amount. That’s a pretty significant loss in just a short amount of time. Remember that it took stock markets 18 months to lose 50% from 2007 to 2009, whereas Bitcoin has recorded this loss in about two months. It’s no wonder many new investors wonder whether they can trust their assets to cryptocurrency.
Gold, Silver, and Crypto Future Price Growth
All investors want to see their assets gain in value, which is after all the entire point of investing. And the tremendous growth in cryptocurrency prices is bringing in more and more investors into the crypto fold. But the big question is how sustainable cryptocurrency price growth is.
Gold and silver have continually and consistently gained value over time. They have acted as safeguards for investor wealth, hedges against inflation, and stable assets through periods of economic turmoil.
The future outlook for gold is strong due to rising inflation and fears of a weakening economy. The outlook for silver is strong due to rising industrial demand from the photovoltaic industry. And with the possibility for gold and silver demand to outstrip mining supply in the future, demand-driven factors could continue pushing both gold and silver prices up.
Cryptocurrencies still operate very much in a place of uncertainty, both from a market perspective and from a regulatory perspective. They're the current “it” investment asset, but how long will that last? Will interest in cryptocurrencies eventually wane to the point that 20-30 years from now we’ll look back at crypto as the Beanie Babies or Tulipmania episode of the early 21st century?
On the regulatory front, the Chinese government is engaged in an all-out war on crypto mining, crypto trading, and crypto usage. It wants to promote its digital yuan and is determined to drive out competition. That in turn has spooked investors around the world and helped drive cryptocurrency prices down across the board.
In short, gold and silver have a track record dating back centuries, and a history of protecting wealth through good times and bad. Cryptocurrencies are a flash in the pan comparatively, and while they’ve shown great growth over the past decade, there’s no telling which cryptocurrencies will still be around a decade from now, or if cryptocurrencies themselves will even be around in a decade.
Even governments that are relatively friendly to cryptocurrency today could change their tune in a few years. And if governments decide to band together to suppress cryptocurrencies, the billions of dollars investors have poured into the crypto market could be lost forever.
How Gold and Silver Can Protect Your Retirement
Many today are looking to protect their assets, and particularly their retirement savings. The possibility of massive losses just before retirement could completely derail your dreams of retirement. And with the likelihood of a major market crash growing every day, you never know when the downturn will come.
While younger investors have been quick to adopt cryptocurrencies and treat them as though they’re a safe haven asset, older investors with more to lose have been more hesitant, and for good reason. There’s no reason to bet the farm on a brand-new class of assets when gold and silver have served the purpose of asset protection for centuries and are continuing to do so even today.
The temptation to try to make enormous profits from cryptocurrency investing can certainly be seductive, but the 25% gain gold made last year and silver’s nearly 50% gain are nothing to sneeze at. And once a market crash is underway, gold and silver could grow significantly more than that.
If you have retirement savings that you want to protect, investing in gold and silver can be a relatively simple process. With a gold IRA or a silver IRA, you can invest in physical gold or silver coins or bars while still enjoying the same tax advantages as your existing retirement accounts. And you can even roll over or transfer assets from your IRA, 401(k), TSP, or similar retirement accounts into a precious metals IRA without tax consequences.
This article originally appeared on Newsmax.
