Gold Prices & Currency Devaluation: Analysis

Gold's reputation as a hedge against currency crashes is put to the test. Here's what you need to know:

Gold in euros: Up 555% since the euro's inception
1970s inflation: Gold skyrocketed from $35 to $850 an ounce
Current price: $1,998.00 per ounce (as of October 20, 2023)

But is gold really your best bet when currencies wobble? Let's break it down:

Gold
- Outperforms stocks in 6 of 8 recent recessions
- Shines during crises but lacks short-term inflation protection
Treasury Bonds
- Ultra-safe, backed by U.S. government
- Yield curve inversions can signal economic trouble
Other Precious Metals
- Silver: Budget-friendly alternative
- Platinum: Rarer than gold, but cheaper
- Palladium: Strong performer in downturns

Quick Comparison:

Asset	Protection	Income	Liquidity	Volatility
Gold	High	No	Medium	Medium
Treasury Bonds	Medium	Yes	High	Low
Silver	Medium-High	No	Medium	High
Platinum/Palladium	Medium	No	Low	Very High

Bottom line: No perfect shield exists against currency devaluation. Your best move? Mix assets based on your goals and risk tolerance.

Gold

Gold isn't just shiny - it's a financial fortress when currencies crumble. Here's why:

During tough times, gold often outshines stocks. In 6 of 8 recent recessions, it beat the S&P 500 by 37%. As paper money loses value, investors rush to this solid asset.

Check out gold's performance in key crises:

Crisis	Time Period	Gold Price Change
COVID-19	Feb-Apr 2020	+5.56%
Global Financial Crisis	Dec 2007-Jun 2009	+13.24%
Oil Crisis	Nov 1973-Mar 1975	+87.05%

These numbers speak volumes: when currencies wobble, gold often stands strong.

But it's not all golden. Short-term inflation protection? Not so much. Gold's more of a long-haul player.

"Gold seems to protect purchasing power over a long period — say, 100-plus years — but provides very little protection against inflation in the short term", says Kevin Lum, a CFP.

So why does gold shine when currencies crash?

You can't print more gold
It's a safe haven in stormy times
When interest rates dip below inflation, gold often gains value

For investors, physical gold bullion can be smart. It's a way to diversify without relying on others' promises.

Central banks are loading up on gold too, preparing for economic bumps.

But gold isn't a cure-all. It's just one tool to help weather economic storms.

2. Treasury Bonds

Treasury Bonds

Treasury bonds are a big deal when currencies lose value. Here's the scoop:

Super Safe: U.S. Treasury bonds? They're like the Fort Knox of investments. The U.S. has NEVER missed a payment. That's why people flock to them when things get dicey.

Yield Curve Magic: Think of the yield curve as the economy's mood ring:

Curve Shape	Economy's Mood
Up	Happy days
Flat	Hmm, not sure
Down	Uh-oh, trouble ahead

Right now? It's upside down. The 2-year bond pays more than the 10-year. That hasn't happened since 1982.

Dollar Dance: When Treasury yields go up, the dollar often follows. Good for buying stuff from abroad, not so great for selling.

Inflation Busters: Some bonds, like I bonds, are built to fight rising prices. They're paying 6.89% now, but that can change.

But wait, there's more:

1. COVID Curveball

In March 2020, Treasuries went rogue:

10-year yield shot up
Treasuries lost 4.9%
Stocks? Down 19.3%

Everyone was scratching their heads.

2. Gold's Glitter

Lately, gold's been stealing the show:

It's up 25% more than Treasuries
30 years ago: under $100. Now? Over $2,500

3. Dollar Drama

As the dollar drops, some investors are giving Treasuries the side-eye.

The Takeaway: Treasury bonds are still a go-to for dodging currency chaos. But they're not always predictable. Keep your eyes peeled on those yield curves and global money moves.

3. Other Precious Metals

Gold's not the only player in town. Let's look at how silver, platinum, and palladium stack up against currency devaluation:

Silver: The People's Metal

Silver's the budget-friendly option. It's held its own during tough times:

1976 crash: Up 15.2%
2007 crash: Up 1.1%

Metal	Avg. Annual Return (Downturns)
Gold	4.5%
Silver	3.2%

Silver's slightly behind gold, but still positive. Plus, it's got industrial demand (think solar panels and smartphones).

Platinum: The Oddball

Platinum's weird. It's rarer than gold, but cheaper:

Metal	Price/Oz (May 2024)
Gold	$2,422
Platinum	$1,100

Why? It's more industrial, making it unpredictable in economic chaos. It tanked 40% in 2008.

But don't write it off. Bank of Poland's Adam Glapiński says:

"Gold will retain its value even when someone cuts off the power to the global financial system, destroying traditional assets based on electronic accounting records."

Same goes for platinum, just with more ups and downs.

Palladium: The Sleeper Hit

Palladium's got game:

Rarer than gold or silver
Crucial for catalytic converters
6.1% average annual return during downturns

That beats gold! But watch out for wild price swings.

Bottom Line

Each metal's got its thing:

Metal	Edge
Silver	Cheap, industrial use
Platinum	Rare, price jump potential
Palladium	High returns, industrial demand

Mixing these metals can help protect against currency chaos. But remember: even shiny stuff can lose its luster.

Strengths and Weaknesses

Let's compare how gold, Treasury bonds, and other precious metals hold up against currency devaluation:

Gold: The Old Reliable

Pros:

Shines during economic uncertainty
Often rises when the dollar falls
Real, physical asset

Cons:

No passive income
Can be a rollercoaster ride
Costs to keep it safe

In 2020, gold shot up 28% as people ran for cover. But it's not always golden. From 1980 to 1984, gold dropped 10% yearly despite 6.5% inflation.

Treasury Bonds: Uncle Sam's Promise

Pros:

U.S. government backing
Regular income
TIPS adjust for inflation

Cons:

Might lag gold in high inflation
Can underwhelm when rates are low
Not for thrill-seekers

TIPS are worth a look. They move with inflation, giving you a real return. But don't expect fireworks – they usually yield less than regular Treasuries.

Other Precious Metals: The B-Team

Metal	Pros	Cons
Silver	Cheaper than gold, used in industry	More ups and downs than gold
Platinum	Rarer than gold, industrial demand	Can be unpredictable in tough times
Palladium	Strong in downturns, key for cars	Wild price swings

Silver's averaged 3.2% yearly returns in downturns, vs. gold's 4.5%. It's the budget option with extra spice.

Platinum and palladium are wild cards. They're crucial for industry, which can mean big wins – or big losses. In 2008, platinum crashed 40%.

The Bottom Line

No perfect shield exists against currency devaluation. Here's a quick look:

Asset	Protection	Income	Easy to Sell	Price Swings
Gold	High	No	So-so	Medium
Treasury Bonds	Medium	Yes	Easy	Low
Silver	Medium-High	No	So-so	High
Platinum/Palladium	Medium	No	Tough	Very High

Peter Schiff, financial commentator, doesn't mince words:

"Staying in cash is dangerous; accumulating government bonds is reckless; but rejecting gold is denying the reality of money."

The key? Mix it up. Combine these assets to build a stronger defense against currency chaos. Just remember: even precious metals can lose their luster short-term.

Key Takeaways

Gold's role during currency devaluation isn't straightforward. Here's what you need to know:

Gold: Not Always a Safe Haven

Gold's performance during inflation is hit-or-miss:

1974-2008: 14.9% yearly gain when inflation topped 5%
1970s: Skyrocketed 35% annually
1980-1984: Dropped 10% yearly, despite 6.5% inflation

Recent Gold Trends

Early 2022: $1,912 per ounce
Nov 2022 - Feb 2023: 14% increase
May 2023: Peaked at $2,042.49

Treasury Bonds: Steady Eddie

I bonds: 6.89% yield
U.S. government backing
Less volatile than gold

Other Precious Metals

Metal	Good	Bad
Silver	Cheaper, industrial use	More volatile
Platinum	Rarer than gold	Unpredictable in downturns
Palladium	Recession-resistant	Wild price swings

Your Game Plan

1. Know Your Risk Tolerance

Can you handle gold's ups and downs? If not, Treasury bonds might be your speed.

2. Read the Room

Gold often shines when markets tank. During the 2008 crisis, it doubled by 2011.

3. Diversify

Jason Porter, Senior Investment Manager at Scottish Heritage SG, says:

"A hedge against inflation would typically increase in value in line with the sharp rise in consumer prices."

No single asset does this perfectly. Mix it up.

4. Think Outside the Box

Fine wine? 13.6% annual return over 15 years. Get creative.

5. Play the Long Game

Gold's century-long return (9,000%) looks weak next to the Dow Jones (60,000%). Short-term protection doesn't always mean long-term growth.

Bottom line: There's no perfect shield against currency devaluation. Each option has trade-offs. Your best move? A mix of assets that fit your goals and risk comfort.

FAQs

What happens to gold when dollar is devalued?

When the dollar weakens, gold prices often climb. Why? Two main reasons:

A weaker dollar buys more gold
Investors see gold as a safe bet

Take the 1970s. The U.S. faced high inflation and a weak dollar. Result? Gold skyrocketed from $35 to $850 per ounce.

"Gold is a safe store of value. Unlike paper money, you can't just print more of it", says Collin Plume, CEO of Noble Gold Investments.

Will gold be valuable in an economic collapse?

Gold often shines when the economy stumbles. Here's the deal:

It's a safe haven. When other investments tank, people run to gold.
It fights inflation. Gold can help protect your buying power.

Let's look at some numbers:

Economic Event	Gold Performance
1973-1979 Inflation	35% annual return
Covid-19 Market Crash (Feb-Mar 2020)	-3.6% vs S&P 500 -34%

Andrew Latham, a Certified Financial Planner, puts it this way:

"Gold can be a stabilizer. It often moves opposite to stocks and bonds."

But don't get too excited. Gold isn't foolproof. From 1988 to 1991, it lost 7.6% despite 4.6% inflation.

Bottom line: Gold can help during tough times, but don't go all in. Many pros suggest keeping it to about 10% of your portfolio.