Silver and Gold - Protecting Your Wealth in Times of Inflation

Silver and gold are two of the oldest forms of wealth known to man. These precious metals have been used as currency for thousands of years. Here's what you need to know about silver and gold as a method of protecting your wealth in times of inflation.

A Simple Illustration

Here's an example of how gold can protect your wealth. Let's say you want to buy a flat screen TV that costs $1,500, which happens to be the same price as one ounce of gold at the time you're considering the purchase. If you hold off on purchasing the TV until a year later, that same television could cost $2,000 due to inflation. The television didn't suddenly increase in value; rather, the paper dollars that you would use to purchase it lost value.

If you purchased one ounce of gold instead of buying the TV, it may be worth $2,000 per ounce because of the decline in the dollar's value. If you cashed in your gold and bought the TV with the cash, you would have preserved your wealth during inflation.

Junk Silver

The easiest way to begin investing in silver is to find a local vendor who deals in what's known as "junk" silver coins. These are U.S. nickels, dimes and quarters that were made up until 1964. These coins contain real silver, unlike coins minted after 1964, and are worth more than 10 times the face value.

Silver Coins

Silver coins are usually sold in 1-ounce versions, and you can also find silver in 10- or 100-ounce bars. The price you'll pay for these is based on the daily spot price.

Gold Coins

Gold can be purchased in 1/10-ounce coins or 1-ounce coins. The most common coins you'll find on the market are 1-ounce American gold eagles and South African Krugerands. If you have the funds to invest, you can also purchase gold bars through a precious metals dealer.

A Hedge against Inflation

You will not be able to suddenly start spending all your silver and gold coins at the store one day. The purpose of investing in precious metals is to protect your wealth against the inflation of paper money. As the dollar continues to be devalued, investors hang onto their silver and gold to "ride out the storm." In theory, once paper currencies stabilize, the precious metals can then be sold back and the investors' wealth has been shielded from that devaluation.

Drawbacks to Silver and Gold

There are a few negative points to consider before trading your paper dollars for silver and gold. One important drawback is that you can not just go to the grocery store and spend a gold coin if you need to buy something. You have to sell the gold for currency that the store will accept.

Another issue is storage. You'll need a place to store silver and gold safely. If you purchase a lot of precious metals, this can be an issue. Consider investing in a well hidden and fireproof safe to store your valuables.

A final risk to silver and gold investments is that governments have a history of gold confiscation during turbulent financial times, including the United States during the Great Depression. Think about all these issues carefully before buying silver and gold.