Who would want to buy your gold during hyperinflation?
mitch asked:
It will take wads and wads of cash to buy your gold during hyperinflation - right? Who would go for it?
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It will take wads and wads of cash to buy your gold during hyperinflation - right? Who would go for it?
November 26th, 2009 at 10:15 am
If hyperinflation is continuing (or you think it is continuing) you buy gold with cash because the value of cash is going down and the value of gold is going up, in relation to the value of cash. It stops the bleeding. In hyperinflation, you want to get out of cash. You should buy anything to get rid of your cash and into commodities — gold, silver, real estate, cars, pretzels, anything. Harlequin
November 27th, 2009 at 12:50 am
The long answer:
Real goods (not just gold) tend to remain more stable (in value) relative to each other during periods of unusual currency fluctuation.
Hyperinflation is generally reserved for extreme price instability — upwards of 100% inflation per year for at least a couple of years. Complete price instability often brings inflation rates in excess of 50% per month and four digit annual rates. This kind of “true” hyperinflation has never happened in modern times in the US and it isn’t likely to happen within the foreseeable future.
High inflation in the double digits annually and chronic deflation (sustained falling prices in excess of 1% per year) have occurred in the US. The most damaging occurred in modern times during the late 1970’s and during the Great Depression, respectively.
The power of real assets, esp. commodities like gold, to offset the long term effects of high inflation is less clear than their power to shield from sudden and/or rapid changes to the value of a currency. That is, all those people who bought gold to “protect themselves” from high inflation DURING the late 1970’s would still be under water relative to other financial assets. On the other hand, those who bought gold PRIOR to the rapid increase in inflation who sold it as it inflation peaked and the Volcker FED hit it with a sledge hammer made out like bandits.
The short answer has two parts. With expectations of high inflation, you buy gold to sell after real inflation for enough cash to offset the effects of inflation on the cash. With expectations of hyperinflation or extreme currency fluctuation (Russia 1990’s, for example), you buy real goods that you expect to be able to barter for other goods after the value of cash becomes hard to fix or worthless. MVD34
November 28th, 2009 at 12:32 pm
Lots of people. Gold benefits from hyperinflation. Free Lunch Economy