Dollars and Gold: A Study of Market Fluctuations

Cheaper to Store Savings in Gold

Which do you find easier to set aside for savings: $64 or $122.26? To match the 2019 spending power of $100 today, you would have needed to set aside $64 to buy gold or $122.26 to keep in currency. Essentially, it costs nearly twice as much to save in dollars compared to gold.

Even placing your dollars in a typical savings account with an average return rate of 0.49%, you would have required $119.30 in 2019 to spend the 2019 time-valued equivalent of $100 in 2024. It’s often more efficient, therefore, to store a part of your savings in gold rather than leaving it all in currency for the long term.

Gold vs. Stocks

It’s common advice from financial news media that investing in stocks is necessary to keep pace with inflation. If we look back to September 2019, the Dow Index was at 28,538. Today, it stands at 41,090, marking a 44% increase over five years. However, when taking official inflation rates into account, which indicate a need for 22.26% more dollars to maintain the same purchasing power as five years ago, the 44% return on stocks translates to only a 21.74% gain in real terms.

What’s more, we likely must pay taxes on the 44% increase, even though more than half of it is merely the result of inflation and the diminished purchasing power of our currency.

The Case for Gold

In terms of net return, gold offers a clear advantage. To get a 44% net return from stocks would have been easier by owning gold. Subtracting the rate of inflation from gold’s 65% gain results in a 42.74% net return, almost mirroring the 44% return but with less volatility. This net return is 21% more than the net gain from investing in the Dow.

Interestingly, the Dow has recently outperformed the S&P 500 index, yet it’s unpredictable if it will continue to do so. What seems more certain, however, is both will likely lose ground when the Federal Reserve begins to lower interest rates.

Federal Reserve Expectations

Significant market downturns often occur alongside the Federal Reserve’s initial pivot on interest rates. After a brief initial rise, markets typically falter (see chart below). This pivotal adjustment is expected within the next couple of months.

Comparison Table: Savings, Stocks, and Gold

Conclusion

Given the fluctuations in the market and the upcoming monetary policy changes, it’s prudent to consider gold as a more effective savings strategy than traditional currency or even stocks. By storing a portion of your savings in gold, you essentially protect your investment from inflation’s erosion and achieve a better net return. Therefore, it’s wise to balance your portfolio to include gold alongside other investments for long-term financial stability.

For further reading on this topic, you can visit reputable sources such as The World Gold Council and Investopedia’s Guide on Gold as an Investment.