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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 presents the much asked question: should I purchase gold or leave my cash in the bank?
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 – electricity, rent or a mortgage; we have to use banks and cash in order to pay for these things. Using banks is therefore unavoidable.
In light of global economic factors, as well as the challenges we face closer to home, the banking system has taken sensible steps such as increasing the circulation of money in terms of the number of notes printed, as well as engaged in quantitative easing and other factors. Bank accounts are stimulated for better or worse by interest rates, which are affected by various unpredictable social factors.
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, and there’s no guarantee that this or future governments will bail banks out.
Cash is also often used instead of credit by individuals looking to keep a more direct track of their spending. For example, Germany remains one of the most cash-intensive advanced economies in the world, and it is speculated that this is largely due to spending habits and an attitude towards budgeting.
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 under the guidance of experts 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 will rise as its mining reserves worldwide diminish. Furthermore, even the most trying of circumstance in today’s modern world won’t pressurise gold’s value as it would perhaps threaten to collapse an unprepared banking institution. If anything, such circumstances only serve to increase gold’s worth due to its solid reputation as a safe haven investment.
Nobody is suggesting that one’s wealth should be entirely removed from the banking system and instead placed entirely 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 far and away the top performing asset of the 21st century, demonstrating 300% growth and rising as new surprises in modern politics and economics buffet more traditional markets. In London, numerous homeowners who have sold their properties have invested the profit margins from that into gold bullion, assuring themselves a financial cushion secluded from the movements and volatility of the banking system.
What’s more, interest rates are becoming less favourable to savers (paying as little as 1%) and inflation is set to hit 5/6%, making savings far less profitable than they have been before. Banks are being added to UK watch lists all the time as new factors leave them under stress, and while deposit protection schemes exist they are limited.
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 2017, 1oz of physical gold is worth more than £1,000, 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.
Whether you are contemplating your legacy or looking for the peace of mind that a physical asset can provide, gold offers a superior way of protecting your wealth than banks or hard cash.
Gold’s value has always been seen to rise during economic uncertainty, so while banks fail and cash loses its value gold remains a powerful asset. While you’ll always need enough money in the bank to pay for basic utilities, and cash for day-to-day purchases, if you are looking for a way to protect and grow your wealth, the traditional savings account should no longer be the first point of call.