While there are multiple reasons for inflation, hyperinflation historically has one root cause: excessive money supply. Debts and deficits reach unsustainable levels, and politicians dilute the currency to cover their expenses. A tipping point is reached, and investors lose confidence in the currency.
The most famous hyperinflation occurred in Germany during the Weimar Republic, from January 1919 until November 1923, when the average price level increased by a factor of 20 billion, doubling every 28 hours. Gold fared well then; in January 1919, one ounce of gold traded for 170 marks; by November 1923, that same ounce was worth 87 trillion marks.
Today, currencies around the world, including the US dollar, are choosing the path of inflation. If we slip into hyperinflation, there will be disastrous consequences for those who are unprepared. When creditability in fiat money dissipates, gold may be the only viable option left standing.
The investment implication is obvious: accumulate gold. Anything less than 5% will not offer you a sufficient level of protection in a high inflationary environment.
Consider how many ounces you need to cover your monthly expenses. In Weimar Germany, inflation rose for two years and then spiraled into hyperinflation for another two. Consider what it would take to maintain your standard of living for a couple years instead of just a couple months.
Disregard government pronouncements of confidence in the current system, along with the mainstream media’s frequently inaccurate portrayals of the gold market. In a world awash in ignorance about real money, investors must study the relevant history, draw their own conclusions, and stick with them.
Government policies are eroding the value of currencies around the world. Investors who start preparing now can not only survive, but thrive in the days that lie ahead.
To read Jeff Clark article: How Does Gold Fare During Hyperinflationary Periods?
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BullionBuzz is a weekly eNewsletter that offers investors a quick snapshot of must-read news pertaining to the markets and precious metals. This week: Euro: Current Course Is Leading to Disaster Continue reading