Gold wins as a store of value for money when the time value of money collapses.
What is the time value of money?
The time value of money means money available now is worth more than the identical sum in the future due to the possibility of making money by placing it somewhere to earn more money. That is why you or a business pays interest on loans and that is also why you used to get something for saving your hard-earned money in a savings account where you can earn interest on it. As you know, that has not happened in years.
Why does it matter?
There are trillions of dollars earning nothing and interest rates have gone below zero in many parts of the world. Interest rates going down is typically good for an economy eventually, but it can also mean something in the economy is not right.
Going below zero is not supposed to happen, period.
That is like going to a shopping event where there is a long line to get in and the people at the back of the line want more money for their spot in line than the people at the front of the line.
Why it matters to You
Large sums of money may move around looking for something that has a store of value. Something investors can hold and tends not to fall apart during times of stress or if the items and instruments related to an economy and by their very nature the time value of money drift lower. Gold and other precious metals typically hold value over a long period of time.
Remember, going under zero for interest rates is something completely abnormal and could cause damage to the whole system where money and credit pass through to the economy, and in turn inhibit growth and can cause loss of jobs and wealth.
If negative interest rates come to the US would you hoard cash or precious metals?
If negative rates persist around the world or even come here to the US some banks may eventually stop being a viable business.
Since you get nothing for depositing money into them or even worse you may be forced to pay the bank to hold the cash.
Basically, banks can go broke since there will eventually be no reason to save your money in the bank, you can simply hoard the money you have or buy something that holds value.
Precious metals such as gold and silver have been used as a store of value for thousands of years and have performed well over the long term. You can store the precious metals or take possession of silver and gold coins and even own precious metals in your individual retirement account (IRA).
Hoarding cash (fiat money) poses a risk if the government decides to devalue the currency or massively expand the money supply then investors eventually will search for stores of value like precious metals and other currencies.
However, all global currencies are fiat money, just paper with full faith and credit from whatever government issues it. Just this weekend an election occurred in Argentina and the Argentine Peso fell apart and lost 15 % overnight.
You can place money in a money market mutual fund, they have been used as a store of value because we have gotten used to them being close to cash, however, they also may cease to exist. So, using money market mutual funds can pose a long-term risk. Think of all the insurance companies and pension funds you could name in a few minutes, they also may also face rough times when expected returns for the last twenty or thirty years dwindle to nothing. Governments will have to expand the money supply to fix that, more debt and more problems.
That leaves gold and other precious metals as a store of value.
What can you do!
Consider a diversification of your portfolio. With an extremely low-interest rate world and perhaps one where banks or governments start to implode look at precious metals.
Diversifying into precious metals like gold, silver, and platinum can be relatively easy by simply owning the precious metals and you can hold bars or coins your hand or store them. You can also keep precious metals like gold in your retirement account using a Gold IRA. It makes a lot of sense when the abnormal becomes normal.
