What is inflation
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Inflation is defined as a general rise of prices for goods and services. It’s a slow erosion of the purchasing power of currency and it’s generally accepted that a low steady inflationary rate is good for an economy. However with Inflation now running at twice the Government’s target it is not surprising that gold hasn’t lost its gleam.
People’s wealth is ultimately used in order to buy goods and/or services. Inflation affects the price of that good or service by making it more expensive and as such the spending power of currency used to buy these goods deteriorates.
The following factors influence our ability to keep up with the cost of living and the constant rise of these goods and services.
- Unemployment – at a 16 year high
- Wages – Flat and have not adjusted to reflect inflationary rises
- Interests rates within Banks – below inflationary rates
- Capital Markets – producing limited returns on investment and in some cases extensive losses
Can we protect ourselves?
The factors above restrict us from keeping up with the cost of living and in many cases individuals end up losing money. It’s often difficult to qualify the effects of inflation as £100 in your bank account today will represent the same amount tomorrow. However, over a few years the same amount of money will afford you less and less as time goes on. Our clients represent people from all walks of life; from the ultra-high net worth individual to people of more modest means and they all require protection against inflationary effects.
It was once mentioned that an ounce of gold bought 350 loaves in the time of Nebuchadnezzar, the king of Babylon who died in 562BC. An ounce of gold still buys roughly 350 ordinary sliced loaves today, showing that over 2,500 years gold has proved a very effective hedge against inflation. People seek to preserve their wealth by placing their savings in gold thereby providing a store of wealth. Instead of inflation casting a shadow over one’s wealth – inflation lends itself to gold by enhancing one’s wealth over and above the cost of living.