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 Replies: 9 / Views: 494 |
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Pillar of the Community
United States
612 Posts |
I was giving a fair amount of thought over the role that silver and gold play against losing purchasing power, a supposed "hedge against inflation". So I did a little research, but I'm not understanding my own research conclusions. Hopefully some of you can set me straight. It goes like this.
The government stopped redeeming silver certificates into silver dollars in March of 1964, and stopped allowing all conversion into any sort of silver bullion by June 1968. Gold was un-pegged from the dollar in August 1971 and allowed to float and find it's own price/value in the open market as of 1973. OK, stay with me here ........
So if gold and silver is supposed to be a hedge against inflation, I would assume that would mean that by owning silver and gold, your purchasing power should not shrink because of inflation. Should not necessarily grow, but just not shrink. Owning Gold and silver should keep your purchasing power even.
So I wanted to see what inflation has done to a dollar. There are a number of inflation calculators on line where you can see how many dollars it would take today to buy the same amount of something in a past year. For instance a quart of milk in 1973 averaged around .25 cents. Today cumulative inflation of 636% has pushed the cost of that same quart of milk to around $1.84. and that's about what it costs today. So here's the part I don't understand.
Since both gold and silver were completely un-pegged from the dollars value by 1973, I thought 1973 would be a good year to use. Silver averaged $2.55 and ounce in 1973, and gold averaged $106. an ounce. So cumulative inflation at (636%) says that silver today should be $18.77 and gold should be $780.16 if both silver and gold truly acted as a hedge to keep things even, no loss of purchasing power but no gain either. But with silver today at around $73. and gold over $4600, they have both outpaced inflation more than 5 fold. And people fully expect these kinds of prices now and are shocked when silver and gold back off a bit. But they would need to back of to $18.77 and $780.16 to keep things even and that would absolutely freak people out.
Well that's it. So can somebody explain to me then the discrepancy between actual inflation that precious metals are supposed to be a hedge against, and why gold and silver is by far outpacing inflation instead?
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Valued Member
United States
274 Posts |
I am not going to have a thorough answer for you. There are plenty of folks here that will do far better than I can. But I have to question whether the price of a quart of milk should be considered the best indicator for overall inflation.
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Pillar of the Community
 United States
6449 Posts |
You need to use long term averages, not a specific date.
You need to use a basket of commodities, property, etc. because different factors like subsidy, speculation, laws will affect specific items differently.
The broad question you asked could fill a book. In short, there are many short term factors that cause commodities like food, oil, precious metals, cash to rise and fall against each other. The long term factors are more important to stackers using precious metals as an inflation hedge.
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Pillar of the Community
United States
2213 Posts |
Pick any two years or decades of time and you'll find sometimes silver gold did beat inflation, sometimes not. To me silver gold are a store of value out of the fiat system whether they hedge against inflation long term or not. It's some insurance away from government control and the banks. There have been periods of time where silver gold prices stayed pretty flat, not moving up or down much. The last two years silver gold prices have risen strongly much more than inflation rate. In my opinion the bulk of a person's net worth should not be precious metals but if stocks, property values crash like the Great Depression a person should have some silver gold as backup assets..
Human history shows we have valued precious metals while the currency of Empires, Kingdoms, Nations have eventually debased, their power declined. With our national debt skyrocketing, someday there will be a reckoning, perhaps hyperinflation like the Weimar Republic, how or when I don't know but I'll keep some silver gold and several months food, ammo, medical kit etc.
There's Youtube channels with varying opinions. Watch for your own amusement or peril LOL. A couple channels I like are Yankee Stacking and Silver Seeker, they both have videos discussing is silver gold a hedge against inflation.
Edited by livingwater
04/03/2026 08:30 am
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Pillar of the Community
United States
4587 Posts |
There are many other factors that enter into PM prices. Demand for physical metal vs. futures contracts is a significant driver.
-----Burton 50+ year / Life / Emeritus ANA member (joined 12/1/1973) Life member: Numismatics International, CONECA Member: TNA, FtWCC, NETCC, EveryCountry (online) coin club Owned by three cats and a wife of 40+ years (joined 1983) Author: 3rd Edition of the Sample Slabs book, https://www.sampleslabs.info/ |
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Pillar of the Community
United States
2213 Posts |
Yes, the big bank silver gold traders of paper contracts affect the prices. In 2020 J P Morgan was fined about 920 million dollars for manipulating metals prices, several of their brokers were convicted. And it's likely to happen again if not already. The government office that oversees commodities trading is the CFTC, Commodity Futures Trading Commision. My opinion is they are sometomes asleep at the wheel, not enough oversite or investigation.
Edited by livingwater
04/03/2026 08:42 am
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Pillar of the Community
United States
1747 Posts |
I agree a lot with what was said above. I will add that when Nixon made the deal with Saudia Arabia to trade oil only in dollars, that made the dollar the global currency. Fast forward to the 2020s and our government froze and later seized Russian held US Treasuries. That signaled to those around the world that US Treasuries were not the safe asset that they were believed to be (if as a foreign government the US could do the same to you if they didn't agree with your actions). I think that was the catalyst for central banks buying gold and later silver.
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Pillar of the Community
United States
6449 Posts |
Quote:
The government office that oversees commodities trading is the CFTC, Commodity Futures Trading Commision. My opinion is they are sometomes asleep at the wheel, not enough oversite or investigation. While that commission can deter manipulation of the U.S. commodities market, it is not much protection against manipulation from foreign investors, countries, and central banks. |
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Pillar of the Community
 United States
612 Posts |
Doing a bit more research I'm not not so sure that investing in gold or silver is really that great of a hedge against inflation anyway. Doing a bit more research this morning and looking at statistics, and arbitrarily using a starting date of 1973, the year that both gold and silver were completely unhinged from the dollar and were allowed to float and find their own value, here are the raw numbers.
$1,000. would have bought $1,000 worth of goods in 1973.
Because of inflation (636% cumulative since 1973) it would take $7360. to buy the same goods today. So if you had just held onto that $1,000 (put it under your pillow), it wouldn't buy much today.
On the other hand if you had used that $1,000. and bought silver with it at around $2.55 an ounce, the silver would be worth around $28,000 today, about 4 times the rate of inflation.
If you had used the $1,000 and bought gold with it at around $97. an ounce in 1973, the gold would have a value today of around $48,000. nearly 5 time the rate of inflation. So spending your $1,000. on precious metals in 1973 and owning physical gold and silver does in hindsight seem to have been a decent hedge against inflation .................. or was it.
If you had just invested that $1,000 in the stock market, the S&P in 1973, and left it there and let all growth in the value of the stocks and all dividends left to reinvest, the value of your $1,000. today would be About $240.500. Not only out pacing inflation by a few hundred thousand dollars, but outpacing silver and gold by a few hundred thousand dollars as well. I think that sort of puts the bosh on precious metals being such a great hedge against inflation.
I think that precious metals investing is more of a "prepper" mentality. Not so much a hedge against inflation, but more of a hedge against total collapse of the financial system as we know it. Like when a currency collapses as it did in Germany after WW1 or Zimbabwe in 2008. Could that ever happen to the US dollar? I suppose anything is possible, but that's a crazy mentality to have. That's "prepper" mentality. Might as well buy canned beans and candles and stock up on TP along with your stack of gold and silver.
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Pillar of the Community
United States
6449 Posts |
If you are prepping for a country to collapse, the metals to own are lead and steel.
Using precious metals as an inflation hedge is not for beginners. It can be a useful tool in a stock market crash, because dividends can fall off sharply, and you don't want to liquidate your portfolio at discounted equity prices. If metals have gained or remained stable in that situation, you can liquidate them instead.
I personally don't like metals to store wealth. They are a dead asset. For a number of reasons, I much prefer productive assets like equities and protected bonds. Most people will do well with dollar cost averaging (steady, periodic) investing into a diversified portfolio.
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Replies: 9 / Views: 494 |
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Posted 04/02/2026 7:24 pm
