Gold Retains its Value Better than Money

While staying liquid may be preferred during the financial crisis, there are other options

After the housing bubble burst in the United States, it grew into a financial crisis that spread to the rest of the world. As it moved from one country to another, it wiped out the wealth accumulated by several generations of people. It did not matter whether people were rich or just had enough to get by, everybody was hit badly.

As a result of this crisis, a report conducted by UBS states that 52% of Millennials, or people born between the 1980s and early 2000s, prefer to keep their assets as cash. This is in stark contrast to 23% of non-millennials.

While money under a mattress will not disappear as stocks or banks collapse, its value does not stay the same because inflation lowers it over time. So if someone living in France kept Euros with an equivalent of $1,000 at the beginning of 2006, it would have been worth $888.61 at the end of 2012. The compounded inflation experienced by France during this period would take as much as $111.39 off the value.

Bonds as Alternative in Bad Times

One option to retain the value of one’s cash is to purchase government bonds because they guarantee a fixed return after about five to twenty years. The interest is set above the projected inflation rates to encourage people to buy the bonds.

While bonds have been a safe haven for decades, the 2008 financial crisis changed everything. Due to the turmoil it wrought, many countries went bankrupt and were unable to pay back bond owners. Since the issuing countries could not honor them, nobody else wanted them, rendering many bonds worthless.

Gold as an Alternative Even in Good Times

Gold took a different path during the financial crisis by proving to be more than resilient. Instead of losing value in the worst of times, it actually gained. If a person bought an ounce of gold at the beginning of the year in 2006, it would have just cost $635.70. By the end of 2012, it would have been worth $1,664.00. With a gain of $1,028.30, that is more than double the amount originally paid for.

However, gold does not only retain value in bad times, it can do the same under favorable conditions. The 2014 inflation rate of France is projected to be at 1.2% by PwC. This means that people with the equivalent of $1,000 at the beginning of 2014 are expected to lose $12 at the end of the year. And while that may not sound too bad, it may pale in comparison to an article found on BullionVault France wherein Goldman Sachs predicts gold prices to jump from $1,715 at the end of 2013 to $2,400 in 2014. That is a huge gain of $685 in just twelve months.

The generation known as the millennials prefers to stay liquid in order to avoid losing money just like their parents did during the financial crisis. However, keeping it under a mattress is not the best way to retain its value. Thanks to inflation, the value of money will go down the longer cash is kept. Investing in gold is one alternative to arrest this slide as it continues to appreciate in good and bad times.

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