Many clients purchasing physical gold from us use wealth originating from their bank accounts. Low paying interest rates that can’t keep up with inflation coupled with escalating counter-party bank risk beg the question: should I purchase gold or leave my cash in the bank?
WHERE DO WE KEEP OUR CASH?
We entrust banks to be custodians of our wealth in exchange for interest. Banks can then use our money to lend to people looking to borrow. It’s a useful system and of course banks are necessary for unavoidable transfers of finance like rent or a mortgage or bills.
During the global financial crisis, and again during the coronavirus pandemic, governments propped up the economy through quantitative easing, pumping money into the economy while keeping interest rates low. The outcome of this prolonged economic stimulus is now substantial inflation which erodes the value of our cash in the bank.
A bank note is a promissory note that transfers wealth from one entity to another. Holding onto cash lacks the immediate security afforded by banks, yet is often chosen by individuals looking to safeguard their wealth. Locked in a safe or vault, it won’t accumulate any interest, but it’s also protected from a bank collapsing due to an economic downturn.
Systemic risk is built into the banking system, and if your bank were to collapse a saver is only covered by up to £85,000 per bank.
Cash is also often used instead of credit by individuals looking to keep a more direct track of their spending. For example, despite a very high technology uptake, Japan is a high cash use country as well as Spain, Italy and Germany.
As a physical asset with established value that consistently climbs, gold has a host of benefits that make it the investment platform of choice to a number of individuals and organisations. Gold’s scarcity and rate of discovery have allowed it to become a universally accepted currency and material asset.
Whether secured in an official capacity in a vault or secured on your own premises, physical gold is a way to remove your wealth from circulation and effectively lock it into a commodity whose value is expected to rise as its mining reserves worldwide diminish.
Furthermore, in the unexpected event of a bank collapse and the collateral effect on the economy, gold’s value would likely increase as a safe haven investment.
GOLD VS CASH
Nobody is suggesting that one’s wealth should be entirely removed from the banking system and instead placed into its counterpart value in gold. Even with the precious metal being as easily liquidated as it is, cash and banks are essential for accessing and transferring your money for daily transactions.
However, as part of a long term strategy, as much as a guarantee of total security away from fluctuations in tax, inflation and currency degradation, physical gold investment is excellent as part of a balanced portfolio. It is a the top performing asset of the 21st century, rising since 2000 as the relentless surprises of new surprises in modern politics, and economics and healthcare have buffeted more traditional markets.
INTEREST AND SAVINGS
In the immediate aftermath of the Global Financial Crisis, the Bank of England slashed interest rates to record lows and there they have stayed for over a decade, dipping even lower after the Brexit referendum, rising just slightly the following year before being cut to just 0.1% in response to the pandemic. This means interest rates for putting your money in a bank have been and remain very low, below 1% in most cases. If the interest rate on cash deposits is lower than inflation, then the value of the cash will be eroded. Inflation was above 4% in October and expected to rise to exceed 5% next year.
Physical cash isn’t subject to counterparty risk but is still subject to inflation. In 1920, £20 and 1oz of gold were worth exactly the same, and could afford the same amount of goods and services – a Savile Row suit. Now, in 2021, 1oz of physical gold is worth more than £1,300, and £20 won’t even buy you a decent necktie. Physical gold has maintained its purchasing power far better than cash, and with inflation set to rise the disparity between gold and cash will increase.
Physical gold and silver is as liquid as cash in a bank account, but with the steady increases in the price of gold driven by scarcity and investment demand gold is a better earner than bank investment. This is especially true during financial crises.
Liquidity is important for investors who want manage a portfolio and make changes into and out of assets quickly as opportunities arise. Holding cash, whether in a bank or under the mattress affords investors this option of moving investments as circumstances change.
But with inflation running so high, any cash won’t hold its value for very long. Any attempt to make interest rates work to even out inflation will be ineffective while the rates are low and inflation is high, and there is the small but possible risk of a bank collapse.
Gold doesn’t pay interest but it has over many centuries held its value, rising along with the price of goods and sometimes surging ahead in times of uncertainty and volatility. Gold is also a highly liquid asset and can be converted into cash within a very short period of time. You may not be able to spend your gold coins at the local supermarket but it’s just as flexible an asset with the added benefit of an inflation hedge. Gold’s
HOW TO BUY GOLD & SILVER
Our Simple 4-step process makes physical gold and silver buying easy.
Q & A
One of our dedicated specialists will work with you to answer any questions you have. We will provide you with factual information (benefits / drawbacks) about all available products. The length of this conversation is down to you and is an opportunity to ask us as many questions as possible. Please note we are not permitted to provide any financial advice. If you require advice, we suggest you speak to a financial advisor.
When you feel confident that you’ve had all your questions answered, you will be asked to complete a purchase order, which is your instruction to purchase metals.
In order to lock in the price and complete your order, you must then make a payment, via bank transfer or personal cheque. We no longer accept any payments over the phone / card payments.
STORAGE AND DELIVERY
We can either deliver your gold directly to you, via our insured delivery service, or you can choose to have your gold safely stored, in a London Bullion Market Association (LBMA) vault, where your physical metals are allocated in your name and with full insurance provided.