Many people view gold as an inflation hedge because they think it retains value when paper money collapses or loses value. Usually, history shows that.

Many seasoned investors see precious metals as beneficial when building their portfolios. Robert Kiyosaki, the best-selling author of the Rich Dad, Poor Dad series, recently told Kitco News that these assets are “insurance” rather than an investment.

“My answer is always to buy more gold and silver,” said Kiyosaki. “It’s not an investment… I buy gold and silver for one reason: because if push comes to shove, I can spend it anywhere in the world.”

George Bee, CEO at U.S. Gold Corp. told U.S. News & World Report that gold has been a proven inflation hedge because it has proven that it can store value over many years.

“You cannot conjure it up with printing presses,” Bee said. “It must be hard-won from the earth’s natural resources. It’s held its value and allure for thousands of years.”

RELATED: Zimbabwe Introduces Gold Coins to Tackle Hyperinflation

However, recently, some serious doubt has been cast upon gold’s role as an inflation hedge.

Gold as an Inflation Hedge

In August 2020, gold reached a record high of $2,058.40 while the inflation rate was at 1.3%. Inflation didn’t affect gold because fears of the COVID-19 pandemic were driving gold prices in 2020.

In contrast, America’s inflation rate rose to 9.1%—the highest level in 40 years—in June 2022. Yet, gold was trading for $1,806.08 on July 1, 2022.

Gold prices fell in the summer of 2022 as inflation continued. Gold was trading at $1,662.58 on Sept. 15, 2022. Yet, the U.S. inflation rate was 8.3% in August 2022.

Gold is losing value as inflation rises. Thus, gold is not an attractive inflation hedge in today’s market. However, some experts say that should change when the Fed reverses its policy-making decisions.

The yellow metal is constantly competing with other investments like the U.S. dollar and Treasurys. As the Fed raises interest rates in its inflation battle, those other interest-bearing investments begin to look more attractive.

However, gold was an excellent hedge during America’s last bout of inflation. Gold reached a high price of around $666 a troy ounce on Sept. 1, 1980. The 1980 gold price approximates $2,396.51 in 2022 dollars, according to the US Inflation Calculator.

Gold was an excellent inflation hedge back then because the U.S. inflation rate was 12.8% in September 1980. The gold price rose to new highs as inflation rose.

Let’s jump back to 2020 when the world was consumed by the COVID pandemic.

With much of the global economy shut down or running on a minimal scale, demand for most goods and services was exceptionally low, a factor working against monetary inflation. As far as the surge in pricing, it just highlights one of the other fundamentals about gold. With fear mounting and cracks in society showing, gold stood tall as a reliable currency.

With most wide sweeping covid measures being rolled back with the economic machine in full gear, demand sharply rose which coupled with blowback from government stimulus and long-standing monetary policy has led to an enormous spike in inflation. Investors holding paper versions of gold like ETFs have responded to the devaluing of the dollar just like stock investors: by selling, leading to a drop in price.

It’s very likely that aforementioned history will repeat itself in the near future. As the Fed has reversed course to handle that inflation, raising interest rates can create a great opportunity for gold to shine. 

Most experts agree that this inflation battle will throw the U.S. economy into a full-blown recession. Recessions typically trigger a rise in precious metals. If the Fed doesn’t have the stomach to follow through with this necessary evil and reduces interest rates to stimulate the economy, then gold will have another opportunity to perform well in the presence of inflation. 

Those who doubt the value of gold as a hedge rightfully point to clear statistics, but without proper context the truth is lost.

How Inflation Impacts Prices

Inflation is one of many factors that affect gold prices. Other factors that raise gold prices include fears of catastrophic events. For example, gold topped $2,000 in August 2020 at the height of the COVID-19 pandemic.

In 1980, fears that the Cold War could soon turn hot drove gold prices. High gold prices came after the Soviet invasion of Afghanistan in December 1979. The gold price rose from nearly $530 on Dec. 3, 1979, to more than $650 on Jan. 1, 1980.  Yet, gold prices later fell as investors learned that Soviet troops were bogged down in a destructive guerrilla war.

Gold and the Stock Market

Other factors that affect gold prices include the performance of other investments. One reason gold prices were so high in 1980 was fears that the stock market was losing its value.

On Aug. 13, 1979, an infamous Businessweek magazine featured the headline “The Death of Equities: How Inflation is Destroying the Stock Market.” Such fears drove many people who normally buy stocks to invest in gold.

Notably, gold prices trended down as the stock market boomed throughout the 1990s.

History shows poor stock market performance can sometimes drive gold prices up. However, poor stock market performance doesn’t always boost gold prices.

Is Gold an Inflation Hedge?

History shows that gold can serve as an inflation hedge.

It’s important to note that investors seeking an inflation hedge need to consider building a portfolio of investments that could include precious metals (like gold and silver) along with others such as real estate, stocks, currencies, cryptocurrencies, and other instruments.

As U.S. News & World Report notes, “investors who hold the metal as a small, defensive portion of their portfolio may find that over long periods of time it holds its worth better than currencies managed by central banks.”

So, basically, if a quick flip for profit is what you’re looking for, gold may not have been the best option lately. However, if your goal is long-term wealth preservation and preparing for what lies ahead, the choice is simple.

If you’d like to invest in gold or want to learn more, claim your free one-on-one consultation.

The opinions, beliefs, and viewpoints expressed in this article do not necessarily reflect the opinions, beliefs, and viewpoints of Red Rock Secured LLC or the official policies of Red Rock Secured LLC. Red Rock Secured LLC is not a financial advisor, is not licensed to provide investment advice and neither provides investment nor financial advice. Red Rock is a product specialist that can help evaluate your precious metals purchase options.

All fiat currencies eventually die. Even some of history’s strongest fiat currencies have died out.

The Dutch guilder, Europe’s reserve currency in the 17th and 18th centuries, collapsed in the 1780s. The guilder survived until 2002, when the Netherlands joined the Eurozone. However, by then, the guilder was merely a national currency.

Similarly, the French franc, Italian lira, and Spanish peseta disappeared in 2002 when the European Union introduced the Euro. Spain, France, and Italy adopted the Euro because their currencies were worthless.

Are Central Banks Preparing for the Dollar’s Death?

Consequently, Americans will wonder how safe the dollar is and if the dollar can last beyond 2030. The U.S. dollar is the world’s reserve currency, the fiat currency most used for international transactions, so its survival is probable.

However, officials at the central banks of Chile, Indonesia, Malaysia, Singapore, Hong Kong, and China fear a dollar collapse. Those banks have organized the Renminbi Liquidity Arrangement, a pool to finance international trade in the Chinese Yuan. Renminbi is another name for Yuan.

The Bank of International Settles (BIS), a bank for central banks in Basel, Switzerland, is organizing the Renminbi Liquidity Arrangement to create a dollar alternative. The existence of the arrangement will convince some people that the dollar is unreliable.

How the Dollar Could Die

History is full of currency collapses and crises. A currency crisis is a sudden drop in a fiat currency’s value.

Currency crises develop because people lose faith in a nation’s currency. For example, countries often suffer currency crises when they lose wars, or in periods of civil unrest. Historically, the faith in the dollar has been high.

However, recent events have caused some foreign observers to doubt the United States and the dollar. The Jan. 6, 2021 riot at the U.S. Capitol and the George Floyd riots in the summer of 2020 convinced many people that America is unstable. The U.S. government’s inept response to the coronavirus pandemic, and the clumsy exit from Afghanistan, have some people doubting America’s capabilities.

A Crisis of Faith

In the worst-case scenario, a currency can lose all of its value and collapse completely. Such collapses can lead to hyperinflation when it takes millions of units of currency to buy groceries or pay utility bills.

Any crisis of faith could strip the dollar of its reserve currency status. A significant crisis of faith could destroy the dollar completely.

To explain, the only value fiat currencies have is the faith people put in them. People use the U.S. dollar because they think it will always retain value. However, if people think the dollar has no value, the dollar will lose its value.

People have faith in the dollar because of the military power and stability of the United States. If the United States becomes unstable, or if a crisis exposes U.S. military power as weak or useless, the dollar could lose its value.

How Taiwan Could Destroy the U.S. Dollar

The British pound sterling lost its reserve currency status because of Nazi victories at the beginning of World War II. In particular, the fall of France and the German blitz against London in 1940.

The U.S. dollar only became a reserve currency because of the American victory in World War II. Thus, any event that casts doubt on American military power can weaken the dollar.

One event that could fatally weaken the dollar is the Chinese conquest of Taiwan. U.S. leaders have staked America’s reputation on their nation’s ability to protect Taiwan from the People’s Republic of China. Notably, the U.S. Speaker of the House Nancy Pelosi sparked a crisis by making an official trip to Taiwan.

A Chinese conquest of Taiwan would make the United States look weak and destroy faith in the dollar. Another event that could weaken the dollar could be a Russian victory in the Ukraine War, which looks improbable because of the incompetence of the Russian military.

The failure of any American military adventure anywhere in the world could be fatal to the dollar. Americans need to worry about such failures because US leaders are getting more aggressive and warlike. Notably, Pelosi went to Taiwan to offend the Chinese, and President Joe Biden openly backing the Ukrainian War against Russia.

A Dollar Death

American leaders’ aggressiveness could lead to a military crisis that destroys the dollar. History shows, that a combination of violence in the United States and a military crisis abroad could be fatal to the dollar.

The Dutch guilder lost its reserve currency status after the Dutch Republic lost the Fourth Anglo-Dutch War to the British Empire in 1784. After the Fourth Anglo-Dutch War, the Dutch Republic collapsed completely during the Patriot Revolution. The Patriot Revolution was a long period of civil unrest and political warfare that only ended when a Prussian army occupied the Netherlands.

History shows even the strongest currencies can suffer a total collapse. Thus, the death of the U.S. dollar by 2030 is possible.

Consequently, smart Americans will invest part of their income and savings in dollar alternatives such as gold, silver, and cryptocurrencies. In today’s world, everybody needs to understand that the death of the U.S. dollar is a real possibility.

Ready to invest or want to learn more? Claim your free one-on-one consultation.

The opinions, beliefs, and viewpoints expressed in this article do not necessarily reflect the opinions, beliefs, and viewpoints of Red Rock Secured LLC or the official policies of Red Rock Secured LLC. Red Rock Secured LLC is not a financial advisor, is not licensed to provide investment advice and neither provides investment nor financial advice. Red Rock is a product specialist that can help evaluate your precious metals purchase options.

History teaches us that recessions shape our economy. Therefore, studying past recessions can show us where our economy is going.

America has suffered 43 recessions and panics since gaining its independence in 1783, Stacker reports. It’s important to note that “panic” is an old term for recession.

Studying these recessions can show us how the next recession could start and end. Savers and investors can examine those recessions to identify recession-resistant assets.
 
Additionally, some investors, like Warren Buffett, have made fortunes during recessions. Notably, Buffett built his Berkshire Hathaway (BRK.B) fortune by buying up cheap companies and stocks during the past few recessions. For example, he purchased the Burlington Northern Santa Fe Railroad during the 2007-2009 recession.

War Leads to Recession

In U.S. history, the best predictor of recession is the end of a war. Recessions followed the end of the Revolutionary War, the Civil War, World War I, World War II, the Korean War, the Vietnam War, and the Iraq War.

In fact, the end of World War II caused two recessions. The V (Victory) Day recession, which lasted from February 1945 to October 1945, was followed by a second recession, which lasted from November 1948 to October 1949. The V-Day Recession was one of the worst in American history. Investopedia estimates that between 1948 and 1949, U.S. Gross Domestic Product (GDP) shrank by 10.9%.

These recessions occurred because federal spending fell by 40% in 1946 and 38% in 1947. The government stopped buying war materials and released millions of men from the military. Moreover, the end of wartime price controls caused consumer prices to skyrocket. Similarly, the GDP shrank by 2.9% at the end of the Korean War as government spending fell.

During the Vietnam War, a rising federal budget deficit led to growing inflation. The federal deficit rose from 1.1% of GDP in 1967 to 2.9% in 1968. Meanwhile, inflation rose from 3.1% in 1967 to 5.3% in 1970.

The deficit grew because President Lyndon B. Johnson and Congress did not raise taxes to pay for the Vietnam War until 1968. In contrast, Congress increased taxes by 4% in 1950 and 1951 to pay for the Korean War.

Thus, the Ukraine War and a potential conflict with China could cause a recession. A recession is probable if a war ends quickly and Congress cuts government spending.

What Causes a Recession?

Any big cut in government spending can trigger a recession. Cuts in New Deal spending (stimulus) and lending curbs on banks caused the GDP to fall by 10% between May 1937 and June 1938. U.S. industrial production fell by 32% during the late 1930s recession.

RELATED: What Happens When Our Economy Enters a Recession?
 
High interest can also trigger a recession. The Federal Reserve triggered the April 1960–February 1961 recession by raising interest rates from 1.75% in 1958 to 4% by the end of 1960.
 
Federal Reserve Chair Paul Volcker triggered two recessions with interest rate increases. Volcker caused the January to July 1980 recession by raising interest rates from 10.5% to 17.5% to “tame inflation.” The 1980 recession ended when the Fed cut interest rates to 9.5% in August 1980. The infamous Double Dip Recession began in July 1981 when the Fed raised interest rates to 19% to tame 11% inflation.
 
The Federal Reserve raised interest rates twice in the summer of 2022 to curb inflation: 0.75% on June 15 and 0.75% on July 28. Thus, history shows the Federal Reserve can trigger a recession.

Oil and Recessions

History shows oil price increases can trigger a recession. The Arab Oil Embargo, which quadrupled oil prices, triggered a deep recession between November 1973 and March 1975.

The Oil Embargo Recession was one of the worst in America’s history. In May 1975, U.S. GDP fell by 3% and unemployment rose to 9%. By 1974, the Fed increased interest rates to 13% to stop inflation. The Iranian Revolution in 1979 and the First Gulf War in 1990 caused recessions by increasing oil prices.

Oil prices are rising because of the Ukraine War. Crude oil prices fell to $65.68 a barrel on Dec. 1, 2021, and rose to $119.98 a barrel on March 8, 2022, after war broke out. Oil prices have fallen since then, but oil was still selling for $93.384 a barrel on Aug. 24, 2022, Trading Economics estimates.

The United States and the European Union have embargoed Russian oil just as the Arabs embargoed their oil during the Yom Kippur War in 1973. Arab states embargoed oil to punish the United States for supporting Israel in 1973. In 2022, the USA and the EU are embargoing oil to punish Russia for invading Ukraine.

Is a Recession Beginning?

The historical examples show that a recession is beginning. In particular, the world is experiencing a major oil embargo similar to the one in 1973.

We are also seeing oil price increases that resemble those in 1973 and Fed interest rate increases. The U.S. is also increasing defense spending because of the Ukraine War. The U.S. Senate is trying to raise the defense budget from $813 billion to $847 billion, Politico reports.

However, Congress is not increasing taxes to pay for the spending. Similar increases in military spending without tax increases led to high budget deficits that triggered inflation and a recession in the late 1960s.

All the historical patterns point to a recession. However, nobody knows how long the recession will last or how bad it could get.

There is no way to protect all your assets from a recession. Conversely, you can protect your money by investing in recession-resistant assets such as gold and other precious metals. 

Ready to invest or want to learn more? Claim your free one-on-one consultation.

The opinions, beliefs, and viewpoints expressed in this article do not necessarily reflect the opinions, beliefs, and viewpoints of Red Rock Secured LLC or the official policies of Red Rock Secured LLC. Red Rock Secured LLC is not a financial advisor, is not licensed to provide investment advice and neither provides investment nor financial advice. Red Rock is a product specialist that can help evaluate your precious metals purchase options.

History shows that political unrest can destroy a nation’s currency. Hence, political or civil unrest in the United States could destroy the U.S. dollar.

Political unrest in other countries has led to hyperinflation and the destruction of fiat currencies. The worst example is in Venezuela, a nation with a government and constitution based on the U.S. system. Venezuela has an elected president and a National Assembly modeled on the U.S. Congress.

On Aug. 11, 2022, a U.S. dollar was worth 59,1736.302637 Venezuelan bolivars (the nation’s currency), X-Rates calculates. Between 2013 and 2022, Venezuela suffered from some of the worst hyperinflation in history. The Central Bank of Venezuela estimates that between 2016 and April 2019, the country’s inflation rate was 53,798,500%.

By 2018, it was cheaper for Venezuelans to use bolivars as toilet paper than to buy actual toilet paper, the Business Standard observes. The BBC claims that in August 2021, a cup of coffee cost 7.8 million bolivars, the BBC claims.

The Connection Between Political Unrest and Hyperinflation

Political unrest is one cause of Venezuela’s hyperinflation. Venezuelan politics are polarized and many citizens view Venezuela’s government as illegitimate. Currently, two men, Nicolás Maduro and Juan Guaidó, claim to be Venezuela’s president.

Guaidó’s followers claim Maduro stole the last presidential election and refuse to recognize him as president. Both Guaidó and Maduro declared themselves president. However, Maduro controls the government because he has the support of the military.

Foreign governments make the situation worse. The U.S. State Department, and many Latin American governments, recognize Guaidó as Venezuela’s “president.” While the People’s Republic of China and the Russian government recognize Maduro.

Political Unrest Destroys a Fiat Currency

The Venezuelan situation has some frightening similarities to recent events in the United States. In particular, a major political figure labeling an election illegal and a president illegitimate.

When examining Venezuela, many Americans will think of the slogan “Stop the Steal,” and recent stolen election conspiracy theories popular in the U.S. Several major US political figures, including former President Donald J. Trump Sr., promote those theories.

Political unrest ignited rioting and street fighting between supporters of the two rival presidents in Venezuela. The biggest casualty of the crisis is the bolivar. The BBC reports that street vendors in Caracas, Venezuela’s capital, only accept U.S. dollars.

The current situation in Venezuela is a little better. Bloomberg estimates the Venezuelan inflation rate fell to 88% in August 2022. However, it is now impossible to measure Venezuelan inflation because Maduro’s government refuses to publish economic statistics, hiding the true state of the nation’s economy.

Hyperinflation and Political Unrest

Hyperinflation and political unrest have a close relationship. Hyperinflation drives political unrest, which creates more hyperinflation.

Sri Lanka is suffering from some of the world’s worst hyperinflation. The nation had an inflation rate of 54.6% and a food inflation rate of 80.1% on June 30, 2022, The Business Standard estimates.

On July 13, 2022, Sri Lanka’s President, Gotabhaya Rajapaksa, fled the country as mobs stormed the presidential palace. The president’s flight followed months of political turmoil and protests, along with hyperinflation.

Hyperinflation and a fuel shortage sparked protests which made inflation worse in Sri Lanka, The Washington Post reports. Observers blame Rajapaksa’s mismanagement of the economy for Sri Lanka’s problems.

Political Unrest in the United States

America has been experiencing political unrest and violence for the last two years. The unrest began with the George Floyd riots in 2020.

The Floyd riots included the burning of police stations in Minneapolis and Seattle and the looting of stores and wealthy neighborhoods in several cities. Then, on Jan. 6, 2021, there was the riot at the U.S. Capitol, in which a mob pillaged congressional offices and threatened to lynch leaders, including Vice President Mike Pence.

Tensions remain high in America. An Aug. 9, 2022, FBI raid on former President Trump’s Mar-a-Lago mansion led to calls for civil war on social media, NBC News reports. Some observers compared the FBI’s actions to those of Latin American governments, such as Venezuela’s.

On Aug. 11, 2022, an armed man tried to enter an FBI office in Cincinnati. CBS News identified the attacker, whom police killed, as a Trump supporter who threatened to kill FBI agents.

Even a group of historians who visited the White House on Aug. 10, 2022 warned President Joe Biden about dangers to democracy. The dangers include “a government by brute force,” and anti-democratic forces, The Washington Post reports. The historians compared the present-day United States to the era before the Civil War (the 1850s) and Fascist Italy.

Is Political Unrest Causing Inflation in the United States?

America’s inflation rate has been rising as political unrest and fears of violence increase. The U.S. inflation rate rose from 0.12% in May 2020 to 9.06% in June 2022 and was last measured at 8.52% in July 2022. Rising inflation shows the dollar has less buying power, a sign that confidence in the dollar is falling.

America is experiencing civil unrest that threatens the U.S. dollar. Recent history shows political unrest can destroy currencies and trigger hyperinflation. Hyperinflation and unrest are not inevitable in America, but they are possible.

RELATED: Demand For Bullion Products Called ‘Insatiable’ As Dollar Collapses Over Time

Smart investors will prepare for hyperinflation by putting their money into dollar alternatives such as gold, cryptocurrencies, real estate, and foreign currencies.

Ready to invest or want to learn more? Claim your free one-on-one consultation.

The opinions, beliefs, and viewpoints expressed in this article do not necessarily reflect the opinions, beliefs, and viewpoints of Red Rock Secured LLC or the official policies of Red Rock Secured LLC. Red Rock Secured LLC is not a financial advisor, is not licensed to provide investment advice and neither provides investment nor financial advice. Red Rock is a product specialist that can help evaluate your precious metals purchase options.

Many people wonder if rising interest rates are a threat to household savings. People fear interest rates’ effect on their savings because of the connection between interest rates and the money supply.

Interest rates are rising because central bankers are trying to control inflation. The Federal Reserve raised U.S. interest rates by 75 basis points on July 27, 2022. Similarly, the Bank of England raised British interest rates from 1.25% to 1.75% on August 4, 2022.

WATCH: “Powell is Like Hamlet. He Can’t Make Up His Mind!” – Charles Goyette

Central bankers think increasing interest rates can reduce liquidity (the money supply). Theoretically, reducing liquidity can control inflation by limiting spending. To elaborate, less liquidity means people have less money to spend, so there is less spending and prices fall.

So how does this affect your nest eggs? Unfortunately, there’s no simple answer because interest rates have many effects on the economy.

RELATED: Could the Fed Destroy Your Retirement Savings?

Interest Rates vs. Cash

In theory, raising interest rates can help cash holders by limiting inflation.

Inflation hurts cash by cutting money’s buying power. For example, the 9.1% U.S. inflation rate decreases the value of a dollar by 9.1 cents. Hence, if you saved $100,000 in cash in 2021, it is worth $90,900 today.

Thus, limiting inflation can increase the value of cash. If inflation falls and money regains its value.

However, central bankers themselves admit that raising interest rates may not control inflation. For example, St. Louis Federal Reserve President James Bullard told CNBC that the U.S. will need more interest rate increases to control inflation.

Bullard thinks interest rates will need to rise to 3.75% or 4% to control inflation, CNBC speculates. At least three other Fed regional presidents, Loretta Mester of Cleveland, Charles Evans of Chicago, and Mary Daly of San Francisco, agreed with Bullard, CNBC claims.

If Bulllard and his colleagues are right, inflation will keep rising for months, and money will keep losing value. Hence, savers with lots of cash will see their buying power shrink.

Interest Rates vs. Savings Accounts

Raising interest rates will raise savings account interest rates. However, the size of the increase is not enough to make up for inflation.

Bankrate estimates that the average U.S. savings account interest rate was 0.11% in July. Hence, the return on a $10,000 savings account was $11 at the current rate.

Yet, the savings account lost 9.1% of its value, or $910 in buying power, because of inflation. Thus, the savings interest rate could double or triple and have no effect on inflation.

High-interest savings accounts are a little safer. For example, Bankrate claims Bask Bank’s savings account offered a 2.02% interest rate in August. Hence, Bask could reduce inflation losses to 7.08% from 9.1%

However, most savers will still lose money because of inflation. Rising interest rates will not protect the money in your bank account from inflation.

Interest Rates vs. Stocks

The short-term effect of interest rate increases on the stock market is mixed. The S&P 500 rose after the July increases but fell after the June increases.

For example, the S&P 500 rose from 3,921.05 on July 26, 2022, to 4,023.61 on July 27, 2022, to 4,141.23 on August 5, 2022. The Federal Reserve increased interest rates by 75 basis points on July 27.

In contrast, the S&P 500 fell from 3,900.11 on June 27, 2022, to 3,821.55 on June 28, 2022. The S&P 500 didn’t rise back to over 3,936.69 on July 19, 2022. The Federal Reserve raised interest rates by 75 basis points on June 27.

Thus, the June increase had no effect on stocks, but the July increase did. Sometimes the stock market ignores interest rate increases, but they can have an effect.

The July experience shows that continuous interest rate increases could be good for investments based on the S&P Index. For example, exchange-traded funds (ETFs), mutual funds, and money market funds.

Interest Rates vs. CDs

Interest rate increases are not helping certificates of deposit (CDs) resist inflation.

Bankrate estimates the typical one-year CD paid a 0.57% interest rate on August 3, 2022. In contrast, a typical five-year CD paid a 0.69% interest rate on the same day. At the same time, a one-year jumbo CD paid a 0.59% interest rate and a five-year jumbo CD paid a 0.71% interest rate.

The 9.1% U.S. inflation rate will destroy over 9% of the value of most CDs at those rates. Even Bankrate’s best CD rates offer little protection from inflation. Bankrate’s best one-year CD, the BankUnited Direct, paid a 2.5% interest rate on August 5, 2022.

An ordinary money market account provided less inflation resistance than CDs. Bankrate estimates the average money market account paid a 0.12% interest rate on August 5, 2022.

Interest Rates vs. Gold

Interest rate increases can hurt gold prices. Gold prices collapsed after the June 27 interest rate increase. BullionVault estimates the average price of an ounce of gold fell from $1,806.74 on June 28, 2022 to $1,695.61 on July 18, 2022.

However, gold rose after the July 27, 2022, interest rate increase. Gold rose from $1,754.98 an ounce on July 26, 2022, to $1,766.26 an ounce on July 28, 2022. Overall, the price of an ounce of gold rose from $1,695.61 on July 18, 2022, to $1,776.21 on August 5, 2022.

In the final analysis, interest rates will not destroy your savings. But there is no proof that a rise in interest rates will keep your savings safe from inflation either.

Critics believe America’s central bank, the Federal Reserve, is a threat to retirement savings.

Many critics believe the Fed’s policy of quantitative easing (QE) destroys savings by causing inflation. In quantitative easing, central banks make enormous purchases of stocks, bonds, and other assets to boost the economy. For example, the Federal Reserve bought $8.7 billion worth of bond exchange-traded funds (ETFs) in the first eight months of 2020.

The idea behind QE is to inject more money into the economy to encourage more economic activity. To give companies reasons to expand, hire more people, and buy more goods from supplies, for example.

The critics’ fear is that the Fed’s ability to create money will allow it to pump unlimited amounts of dollars into the economy. Increasing the money supply can generate inflation by lowering the dollar’s value.

How Inflation Destroys Retirement Savings

Inflation destroys retirement savings by decreasing the value of cash in savings accounts, or CDs. For example, $100,000 in cash would lose $9,100 in buying power with the 9.1% June 2022 inflation rate.

Interest will not protect savings from inflation. To explain, the average interest rate for U.S. savings accounts was 0.11% on July 20, 2022, according to Bankrate. However, the U.S. inflation rate was 9.1% in June 2022. That means the money in a savings account lost 8.95% of its value despite the savings rate.

Inflation destroys even “high-yield” savings accounts. Bankrate estimates Citizens Bank’s online savings account paid a 1.75% interest rate on July 23, 2022. Thus, with the current inflation rate, money in a Citizens’ Bank savings account still lost 7.31% of its value.

Additionally, inflation can lower the value of stocks by decreasing economic activity. To elaborate, in inflation, prices usually rise faster than income sources such as Social Security or wages. Hence, people have less spending money, which leads to less economic activity.

Did Central Banks Create Inflation?

Even some central bankers are blaming central banks for inflation. Mervyn King blames the Bank of England’s QE for the United Kingdom’s 9.4% inflation.

King called quantitative easing an “intellectual mistake” in remarks to Sky News. Notably, King led the Bank of England, the United Kingdom’s central bank, from 2003 to 2013.

An official report from Australia’s central bank blames QE for that nation’s 5.1% inflation. The Reserve Bank of Australia’s official autopsy of the COVID-19 QE admits the institution overestimated the extent of economic collapse, which led to inflation when the economy recovered.

Hence, the autopsy concludes the Reserve Bank helped cause inflation by getting QE wrong. Governor Philip Lowe admits the Reserve Bank of Australia will have to interest raise rates by 25 to 50 basis points to counter inflation.

Are Central Banks Responsible for Inflation?

Central bank critics note that Japan had a 2.2% core inflation rate in June 2022. In contrast, the United States had a 9.1% inflation rate and the United Kingdom had a 9.4% inflation rate in the same month.

Japanese leaders engaged in a different version of quantitative easing than their British and American counterparts. American and British leaders did not respond to the economic downturn of 2008 with massive spending programs. Instead, quantitative easing and the bailout of failing companies were the only responses.

In contrast, Japanese Prime Minister Shinzo Abe engaged in a massive government spending program the press calls Abenomics. For example, Abe’s government expanded the military and built new high-speed rail lines. However, quantitative easing by the Bank of Japan was part of Abenomics.

Abenomics did not restore Japan’s economic growth, but it prevented inflation. The Japanese example shows how quantitative easing combined with government spending could limit inflation.

Notably, both the Biden administration in the United States and the UK’s Conservative government, have adopted elements of Abenomics. For example, Biden has proposed a $5.8 trillion federal budget that includes $550 billion in new infrastructure and a $30 billion defense increase.

Can You Protect Your Savings From Central Banks?

Predictably, many people are trying to protect their savings from central banks, or rather, central bank-created inflation.

There are two popular strategies for protecting savings from inflation. The first strategy is to move savings from cash to assets that are less vulnerable to inflation. Those assets include gold, other precious metals, collectibles, and real estate.

No asset is immune from inflation. Yet, many people believe physical assets, such as gold and real estate, are more likely to retain their value.

Some people think gold retains value because it sits outside the cash economy. Others believe real estate retains value because of demand—people will always need homes.

Inflation Resistant Assets

The second strategy is to invest in assets that could appreciate faster than inflation. Such assets include stocks and cryptocurrencies. For example, the S&P 500’s average annualized return was 10.49% between 1926 and 2021. In some years, the S&P 500 delivered a higher return, for instance, 26.89% in 2021.

Individual retirement accounts and 401(k)s are an attempt to use this strategy to protect savings from inflation. However, stocks are vulnerable to massive losses. The S&P 500 lost 38.49% of its value in 2008.

Neither strategy is perfect, but a combination of both could protect your savings from the central bank’s caused inflation.

Ready to invest or want to learn more? Claim your free one-on-one consultation.

The opinions, beliefs, and viewpoints expressed in this article do not necessarily reflect the opinions, beliefs, and viewpoints of Red Rock Secured LLC or the official policies of Red Rock Secured LLC. Red Rock Secured LLC is not a financial advisor, is not licensed to provide investment advice and neither provides investment nor financial advice. Red Rock is a product specialist that can help evaluate your precious metals purchase options.

Some central bankers consider the Chinese yuan, or renminbi, a viable alternative to the U.S. dollar.

The central banks of Chile, Indonesia, Malaysia, Singapore, Hong Kong, and China are creating a yuan reserve to facilitate international trade without dollars. Each central bank will deposit 15 billion yuan ($2.24 billion) in a reserve pool they call the Renminbi Liquidity Arrangement. The pool will finance trade and lending in yuan. To explain, the renminbi is the official name for the yuan, the currency of the People’s Republic of China.

Interestingly, the arrangement is not a Chinese-led effort. Instead, the Bank of International Settlements (BIS), the bank for central banks in Basel, Switzerland, is organizing the project. The BIS is an international organization headed by a Mexican General Manager, Agustín Carstens.

Nor is the arrangement an anti-American or a nationalist move. Notably, Russia is not taking part in the scheme. In fact, three of the countries in the arrangement, Chile, Indonesia, and Malaysia, are historic U.S. allies.

Nations Creating U.S. Dollar Alternative

The arrangement is an effort to create an emergency alternative to the U.S. dollar. To explain, the central bankers want international trade to continue if the dollar collapses.

The economies of all five Renminbi Liquidity Arrangement nations depend heavily on trade. Chile’s economy is based on the export of copper and other minerals. Indonesia is a major exporter of natural gas, oil, rubber, minerals, and palm oil. Malaysia is an exporter of electronics. Singapore is one of the world’s leading financial centers, and China is the world’s workshop responsible for 28.7% of global manufacturing output.

Without international trade, the societies, governments, and economies of all five nations could collapse. International trade depends on the U.S. dollar because the dollar is the world’s reserve currency. To explain, the reserve currency is the fiat currency that central banks, corporations, and big financial institutions use for cross-border transactions.

Thus, some major central bankers think the U.S. dollar is no longer safe and are seeking an alternative. Those bankers are using the yuan because the People’s Republic of China is the world’s second-largest economy and China has the second-most powerful military. In particular, China’s People’s Liberation Army Navy now has more ships than the U.S. Navy.

Why Central Bankers are Skeptical of the U.S. Dollar

Central bankers want an alternative to the dollar because they are afraid of civil unrest or violent political changes in the United States.

These fears exist because of the Jan. 6, 2021, riot at the U.S. Capitol. Central bankers and others watched a mob chase Congress out of the seat of government on television. Additionally, they saw the U.S. military fail to respond to violence at the Capitol.

Since then, speculation about a Second American Civil War has filled the U.S. and foreign media. Such speculation raises fears about the United States and the dollar.

The reasonable conclusion from a non-American observer is that the United States is a violent and chaotic country with an ineffective government. Obviously, such a nation cannot support the reserve currency. The basis of a reserve currency is military and economic power.

There are now serious doubts about the stability of the United States, the ability of the U.S. government, and the capabilities of the U.S. military. The chaotic U.S. evacuation from Afghanistan showed a complete failure of U.S. intelligence and military planning. Consequently, some foreign observers fear a sudden collapse of U.S. military power, similar to the implosion of the British Empire in the 1940s.

Another development raising doubts about American power is the failure of U.S. sanctions to stop the Russian invasion of Ukraine. The Center for Research on Energy and Clean Air estimates that Russian energy export revenues rose to a record high of $97 billion during the first 100 days of the Ukraine War. The failure of sanctions exposes the limits of American economic power.

RELATED: What Western Sanctions Mean for Russia’s Gold and Gold Investors

Are Central Bankers Seeking to Replace the U.S. Dollar?

The central bankers behind the Renminbi Liquidity Arrangement are not seeking to replace the U.S. dollar as the world’s reserve currency.

Instead, the central bankers want something to take the dollar’s place if it collapses. The fear behind the arrangement is that a catastrophic event will destroy faith in the dollar. That event could be civil unrest or political violence in the United States, political collapse, or a U.S. military failure.

The bankers want an alternative reserve currency ready to go if the dollar fails. To that end, they are building an infrastructure to support the yuan as a reserve currency through the BIS.

The Renminbi Liquidity Agreement shows fears that the U.S. dollar could collapse are realistic and reasonable. The Central Bankers and the officials at the BIS are intelligent people who understand a dollar alternative is necessary.

Investors need to learn the same lesson and start exploring dollar alternatives such as gold.

Ready to invest or want to learn more? Claim your free one-on-one consultation.

The opinions, beliefs, and viewpoints expressed in this article do not necessarily reflect the opinions, beliefs, and viewpoints of Red Rock Secured LLC or the official policies of Red Rock Secured LLC. Red Rock Secured LLC is not a financial advisor, is not licensed to provide investment advice and neither provides investment nor financial advice. Red Rock is a product specialist that can help evaluate your precious metals purchase options.

One of the greatest dangers in today’s financial markets is an implosion of the debt market.

What is the Debt Market?

The debt market is a financial market where investors trade in debt securities like mortgage-backed securities, CDs, bonds (corporate, government, municipal), and so on.

A debt market implosion can bring down the economy because corporate America has accumulated enormous amounts of debt. SIFA Research estimates that U.S. corporations had $10 trillion in outstanding corporate bonds (debt) in the first quarter of 2022.

An implosion of the debt market could leave many companies with no way to finance their operations. Worse, many of those companies will have no way to pay off all that debt.

The Financial Times estimates that one-third of publicly-traded companies in the U.S. don’t make enough money to cover the interest payments on their debts.

Those companies survive by borrowing more money at higher interest rates (often in the form of junk bonds) to pay the interest. If those companies can’t borrow, they face bankruptcy because they can’t pay the interest.

Is the Debt Market Imploding?

There are some signs the debt market is imploding. For instance, rising inflation is scaring investors away from the debt markets.

The prices of exchange-traded funds (ETFs) that specialize in corporate debt took a big hit on June 13. In 2022, shares of the largest Junk Bond ETF; the iShares iBoxx USD High Yield Corporate Bond ETF HYG, fell from $86.97 on Jan. 3, 2022, to $73.82 on June 16, 2022.

Corporate bonds are fell over fear the Federal Reserve would raise interest rates to counter inflation.

The Fed raised interest rates by 75 basis points on June 15 — the largest increase recorded since 1994. Officials hiked rates by 50 basis points the month prior.

RELATED: What the Fed’s 75 Basis Point Interest Rate Hike Means For You

Yahoo! Finance forecasts the Fed’s action will raise short-term borrowing rates by 1.5% to 1.75%.

The Fed said it expects to increase rates by another 1.75% over the next four policy meetings, ending the year above 3%, CNBC reports.

Will the Junk Bond Market Implode?

The greatest danger from rising interest rates is the junk debt market. The danger is acute because unhealthy companies rely on junk, or high-interest, bonds to finance their operations. Small price increases can make it too expensive for companies to pay off junk bonds.

It’s estimated that the amount of expensive junk debt in the U.S. has doubled to $1.5 trillion over the past decade. The Financial Times estimates that expensive junk debt comprises 15% of total U.S. corporate debt.

The Financial Times claims only massive injections of liquidity from the Federal Reserve allowed the junk bond market to survive the COVID-19 pandemic. There is evidence the junk bond market is falling again.

Reuters reports that BlackRock’s iShares iBoxx $ High Yield Corporate Bond ETF (HYG.P) fell by 2.1% on June 13. That was the lowest price since April 2020.

Expensive junk debt is destructive because it finances the weakest companies. For example, declining retailers such as the department store operator Kohl’s (KSS). Notably, Kohl’s management announced it was selling the company to Franchise Group Inc. (FRG) in June 2022 as interest rates rose.

Shadow Banks and the Debt Market

The greatest danger in the debt markets is the private lenders The Financial Times’ Ruchir Sharma calls “shadow banks.” Shadow banks include pension funds, private equity firms, and hedge funds.

Shadow banks make unregulated loans and sell junk bonds to risky borrowers, including small businesses. Sharma estimates shadow banks had $63 trillion in assets worldwide in May 2022. Shadow bank lending rose from $30 trillion in 2012.

BNY Mellon estimates what it calls “Alternative Assets Under Management” will rise from around 12% of assets under management in 2021 to around 22% of assets under management in 2026. BNY Mellon’s definition of alternative assets includes private debt, private equity, and hedge funds that invest in debt.

Shadow banking is growing at a rate of 8% to 10% a year, Sharma claims. It’s hard to track shadow bank lending because many private investors make many such loans. Many shadow banks operate in underregulated secondary markets such as Luxembourg and Ireland.

One reason for shadow banking’s growth is the central banks’ crackdown on traditional debt markets such as mortgages after the 2008 meltdown. The crackdown drove enormous amounts of money into the shadow markets, which offer higher returns.

One popular segment of shadow banking is “business development companies” that make loans to financially fragile companies. Investors like business development companies because they offer returns of 7% to 8%. The danger is that financially fragile companies are the first to collapse in an economic crisis.

The growth of junk debt and shadow banking shows the question investors need to ask is not if debt markets will implode, but when debt markets will implode. Many investors will want to protect themselves from a debt market implosion by hedging their money. Hedging means keeping part of your money outside the markets in cash or precious metals.

Claim your free one-on-one consultation to learn more about investing in precious metals.

The term “stablecoin” is misleading because stablecoins can be very unstable. They aren’t stable because of their nature.

A stablecoin is a cryptocurrency where the value is pegged to another currency, commodity, or financial instrument.

These cryptocurrencies also have a smart contract built-in. A smart contract is an app or digital robot that performs a task. Stablecoin smart contracts make payments in fiat currency when you spend the stablecoin.

For example, Tether (UDST), pays in U.S. dollars from a bank account when you spend it.

Stablecoins don’t contain fiat currency as many fans think. Instead, the currency is in a bank account or paid through an algorithm. Thus, Tether’s only value its’ smart contract’s ability to make payment in U.S. dollars. If the smart contract can’t make payment, Tether loses all its value.

The term stablecoin comes from the unsubstantiated belief that they will always have the same value as the fiat currency they make payments in.

For example, Binance USD (BUSD) fans think BUSD will always make payments in dollars so it always be worth $1.

Stablecoins Can Lose Value

Stablecoins can lose all value if there is no money in the bank account or if technical problems prevent the smart contract from making payment.

Moreover, stablecoin prices can fluctuate, or crash, if speculators think there is something wrong with it.

The price of the TerraUSD (UST) dropped below 10 cents earlier this month. While it’s estimated that TerraUSD’s market capitalization fell from $18.44 billion on May 9, 2022 to $1.3 billion on May 17, 2022. If CoinMarketCap is correct, TerraUSD lost $17.14 billion in market capitalization in eight days.

CNBC alleges that TerraUSD lost its value because the Luna Foundation, the organization behind it, didn’t back it with money in a bank. Instead, they use a complex algorithm to get funds to back TerraUSD. When the algorithm failed, TerraUSD’s price collapsed.

Why Stablecoins are Unstable

Stablecoins are unstable because the market determines their price. The market price is what traders or speculators pay for an asset, not its true value.

For example, Tether (UDST) was trading at less than a dollar 99 cents on May 17, 2022. Yet, Tether’s smart contract will still pay $1. Similarly, the Neutrino USD (USDN) was trading for 95 cents, the USDX was trading for 80 cents, and the XSGD was trading for 71 cents.

These stablecoins trade for under a dollar because speculators don’t believe they are worth $1. Investors need to be leery of these stablecoins because speculators’ doubts about them could be valid.

The TerraUSD debacle shows any stablecoin can lose its value in a market crash. Stablecoins, like gold and stocks, are vulnerable to market crashes.

The Risks From Stablecoins 

Stablecoins present a double risk because they combine two assets: cryptocurrency and a fiat currency.

Thus, the Stasis Euro (EURS) combines the risks of the Euro and the EURS cryptocurrency. If the Euro loses value, the EURS loses value. The Stasis Euro’s price will go down if the Euro’s price falls in Forex trading.

Additionally, stablecoins are vulnerable to inflation and hyperinflation. If inflation reduces the buying power of the U.S. dollar, it will cut the buying power of Tether or Binance USD.

A fiat currency can collapse if people lose faith in the government that issues it. Fiat currencies often collapse if a nation loses a war or suffers a revolution. Stablecoins are vulnerable to all the problems facing fiat currencies and cryptocurrencies.

A stablecoin can collapse if the technology behind the smart contract and algorithms fails, preventing payment in fiat currencies. The stablecoin can also collapse if it can’t make payment because of an empty bank account. Thus, Tether could collapse if hackers stole all the dollars in its accounts.

Are Stablecoins Safe?

The safety of stablecoins is hard to determine because they are a new technology. The first stablecoins, BitUSD and Tether, appeared in 2014, just eight years ago.

Stablecoins only became popular in the last two or three years. Thus, stablecoins are a new and unproven technology. Notably, it is unclear how inflation and the economic chaos the Ukraine War is unleashing will affect stablecoins.

Gold Stablecoins

There are also some gold-backed stablecoins including Tether Gold (XAUt). Tether Gold is an ERC-20 token built on the Ethereum blockchain. Tether claims each XAUt token represents ownership of one fine troy ounce of physical gold on a London Good Delivery Bar.

A London Good Delivery Bar is a gold or silver bar that meets the standards set by the London Bullion Market Association. A company called TG Commodities Limited holds the gold bars in trust for Tether Gold owners in a British vault.

Tether Gold is a digital asset for rich people. To buy Tether Gold (XAUt) you need a verified account with TG Commodities Limited. There is a minimum purchase price of 50 XAUt. I calculate the minimum purchase amount for Tether Gold (XAUt) was $90,966 on May 17, 2022.

Tether Gold’s price can be close to the gold price. CoinMarketCap gave Tether Gold a $1,819.31 Coin Price on May 17, 2022. A pure troy ounce of gold was trading at $1,816.32 on the same day. Thus, gold stablecoins could be a safer investment than fiat currency stablecoins.

In the final analysis, stablecoins are a new technology that could be unreliable and unstable. Investors need to be leery of stablecoins because they are risky assets.

If you want to invest in a proven safe haven, think about precious metals.

Let us provide you with a free, no-obligation, one-on-one consultation. Our account executives will answer all of your questions and help figure out which option is best for you!

America is in the midst of a commercial real estate bubble that could threaten your retirement savings.

Experts say the commercial real estate market is bubbling.

The RealDeal estimates that U.S. industrial property returns grew by 45% in 2021. While returns on multifamily properties like apartments rose by 25% and storage unit returns grew by 30%. In contrast, office space returns did not grow in 2021, and retail space returns grew by 6% in 2021.

RELATED: Could the U.S. Housing Bubble Lead to Higher Gold Prices?

Consequently, commercial real estate sales are booming. Real Capital Analytics estimates that the value of U.S. commercial property sales grew to a record $809 billion in 2021. Morningstar analysts estimate that real estate ETFs and open-ended funds saw net flows grow from a $3 billion loss in 2020 to a nearly $18 billion gain in 2021.

Can the Commercial Real Estate Bubble Affect Your Savings?

The commercial real estate bubble’s potential effects on investments are difficult to see.

Most investors don’t own commercial real estate, stock in commercial real estate exchange-traded funds (ETFs), or mutual funds. However, commercial real estate costs affect most businesses.

All publicly-traded companies lease or own some commercial real estate. Retailers lease stores, e-commerce companies lease fulfillment centers, and many internet companies own or lease data centers.

Higher real estate costs could increase expenses and lower profits at many companies. Consequently, rising real estate prices could drive inflation, which destroys some investments’ value.

Is the Commerical Real Estate Bubble Driving Inflation?

Our nation’s inflation rate rose to 8.5% in March 2022 — the highest level recorded since 1981. The inflation rate was 4.2% back in April of 2021.

Real estate costs drive inflation because almost all businesses need some property. When commercial rents rise, businesses raise prices to cover them.

According to Business Insider, warehouse rents rose by 40% from 2021 to 2022.

Inflation could drive the commercial real estate bubble because many investors use real estate as a hedge. Some investors buy rental housing because it is easy to raise rents with inflation in some markets.

Other investors will buy hotels; or homes they can use as short-term rentals (Airbnb), as inflation hedges. For instance, hotels and Airbnb hosts can raise rents on a daily, or weekly, basis to keep pace with inflation.

Money often flows out of stocks and bonds and into real estate in times of high inflation. Some investors will dump stocks to buy real estate because property can be more stable.

How the Commercial Real Estate Bubble Threatens Your Savings

The biggest threat a commercial real estate bubble poses to your savings is inflation. If real estate costs keep going up, so will inflation.

Inflation can destroy the value of cash investments such as savings accounts and certificates of deposit. Bankrate estimates that the average interest rate for U.S. savings accounts is currently 0.06%. That means the average U.S. saving account lost 8.44%, with the 8.5% annual inflation rate in March 2022.

If the commercial real estate bubble continues, the inflation rate could rise, leading to more losses. Savers will need to find alternatives to cash investments if the commercial real estate bubble continues.

Ordinary investors will face a nasty dilemma if inflation continues. As inflation rises, it makes many popular investments, such as real estate and some stocks, too expensive to buy.

Can Gold Protect Your Savings?

Fortunately, there are some inflation hedges available. One popular alternative to cash investments is gold.

Throughout times of economic crisis, gold has proven time and time again that it can retain its value.

Precious metals could be a helpful defense against the commercial real estate bubble.

Let us provide you with a free, no-obligation, one-on-one consultation. Our account executives will answer all of your questions and help figure out which option is best for you!

Some experts say that America is close to another housing bubble — one that could lead to economic catastrophe.

According to a recent Forbes article, U.S. home prices are up 19.2% over the past 12 months. However, economists fear the reign of the hot housing market may soon be coming to an end.

George Ratiu, manager of economic research at Realtor.com, recently said, “We’re not in a housing bubble just yet—but we’re skating close to one if prices continue rising at the current pace. Some markets will see a correction if mortgage rates continue to rise, in which sales will drop and prices will follow.”

While he doesn’t see a “huge crash or spike in foreclosures,” others aren’t so sure.

Federal Reserve Bank of Dallas Economist Enrique Martínez-García said, “The housing market has become bubbly.”

In a recent report, he and other economists found signs of a housing bubble in the real estate market.

That report indicated there’s concern that U.S. housing prices are “becoming unhinged from fundamentals.” That means people are paying far more for homes than the property is actually worth.

For example, the average sales price of a house in the U.S. was $477,900 in the fourth quarter of 2021, the St. Louis Fed estimates. Statista estimates that the average new home sales price rose from $391,900 in 2020 to $267,900 in 2011.

Will the Housing Bubble Create a Financial Crisis?

A sudden rise in home prices preceded the Global Financial Crisis of 2007–2008. The average U.S. home price rose from $207,000 in 2000 to $297,000 in 2005, Statista estimates.

Recent housing price increases are larger and faster than the price growth before the last financial crisis. The last housing bubble ended with a sudden collapse of the financial markets.

The last financial crisis occurred because home prices exceeded the properties’ true values. One result of those prices was the mortgage crisis, in which mortgages were far larger than the home’s value.

This created thousands of what real-estate pros call “underwater homes.” A home is underwater when the sales price can’t pay off the mortgage. Underwater mortgages can trap owners who can’t cover payments, such as the unemployed. While they can’t pay their mortgages, they can’t sell their homes either.

During the financial crisis of 2008, many people stopped paying their mortgages and abandoned their homes because they couldn’t sell the property or pay the mortgage. When analysts realized that thousands of mortgages were being neglected, financial institutions collapsed.

Speculation is Driving the Housing Bubble

Today, home prices are rising faster than in the last housing bubble. One reason is due to the fact that ordinary people are not participating in the home-buying frenzy.

Instead, investors and speculators, some of whom are foreign citizens, are buying the homes, hoping to flip them quickly. For example, The Orange County Register estimates investors comprised 51% of Southern California home buyers in December 2021.

Such speculation is dangerous because investors will pay a far higher price for homes than ordinary people. The Orange County Register estimates the median price Southern California investors paid for a home in December 2021 was $898,000.

The housing bubble could collapse fast because speculators usually cash out quickly when prices start falling. All it will take is a sudden sell-off by a few speculators in a market such as Southern California to burst the housing bubble.

Could the Housing Bubble Burst Boost Gold?

A sudden housing bubble burst could boost gold prices. Gold prices rose after the last real estate bubble burst.

According to MacroTrends, the price of a troy ounce of gold rose from $959.05 in May 2006 to $1,303.51 in March 2008. Gold prices kept rising to a high of $2,315.93 in August 2011.

In contrast, the St. Louis Federal Reserve estimates that the average U.S. house price fell from a high of $322,100 in the first quarter of 2007 to $259,700 in the fourth quarter of 2011.

History has shown that gold retains value when a housing bubble bursts, while homes don’t. As we know, history tends to repeat itself.

People who think their homes will protect their wealth from the economic chaos of a real estate bubble and a financial crisis may want to have something else in their back pocket.

Homes will lose value, but gold can retain value. If you want to protect your family’s wealth from a housing bubble, think about investing in gold and other precious metals.

Let us help you with that by providing a free, no-obligation, one-on-one consultation. Our account executives will answer all of your questions and help figure out which option is best for you!