Preserve Your Purchasing Power

SOURCE : http://www.goldmoney.com/preserve-purchasing-power.html

Accumulate gold and silver

Purchasing power represents the amount of goods and services you can buy with a currency. You should aim to preserve your purchasing power to ensure that the currency you are working hard to earn today is still valuable in the future when you want to spend it. The key to preserving your purchasing power is two-fold:

1. You should hold currency that retains its value over long periods of time.
2. You should hold currency that is appreciating relative to most, if not all other currencies in both the short and medium-term.

Historically, buying gold and silver has been an excellent way of preserving purchasing power over long periods of time. Today it takes almost the same amount of gold or silver to buy a barrel of crude oil as it did 50 years ago. This is in stark contrast to national currencies (also called fiat currencies), like the US dollar, the values of which strongly erode over time. Central banks and governments have set a long-term trend of currency debasement, and it is unlikely that this trend will be reversed anytime soon.

Gold and silver are the only globally recognised currencies that cannot be created out of thin air, which makes both of them great stores of value (preservers of purchasing power) in the long-term. Unlike fiat currencies that can easily be debased, gold and silver remain the ultimate forms of money.

How do gold and silver preserve and increase your purchasing power?

If you would have invested $10,000 on 1 January 2000 in 3-Month US Treasury bills your purchasing power would have slightly decreased on 1 January 2012. If you would have invested the same $10,000 in gold or silver, your purchasing power would have quadrupled. See the chart below.

The US dollar and 8 other major currencies versus gold

Gold rose over 10% in 2011 against the US dollar. Gold also rose in 2011 against each of the eight other major world currencies presented in the following table. 

Gold % Annual Change
	USD	AUD	CAD	CNY	EUR	INR	JPY	CHF	GBP
2001	2.5%	11.3%	8.8%	2.5%	8.1%	5.8%	17.4%	5.0%	5.4%
2002	24.7%	13.5%	23.7%	24.8%	5.9%	24.0%	13.0%	3.9%	12.7%
2003	19.6%	-10.5%	-2.2%	19.5%	-0.5%	13.5%	7.9%	7.0%	7.9%
2004	5.2%	1.4%	-2.0%	5.2%	-2.1%	0.0%	0.9%	-3.0%	-2.0%
2005	18.2%	25.6%	14.5%	15.2%	35.1%	22.8%	35.7%	36.2%	31.8%
2006	22.8%	14.4%	22.8%	18.8%	10.2%	20.5%	24.0%	13.9%	7.8%
2007	31.4%	18.1%	11.5%	22.9%	18.8%	17.4%	23.4%	22.1%	29.7%
2008	5.8%	33.0%	31.1%	-1.0%	11.0%	30.5%	-14.0%	-0.3%	43.7%
2009	23.9%	-3.6%	5.9%	24.0%	20.4%	18.4%	27.1%	20.3%	12.1%
2010	29.8%	15.1%	24.2%	25.5%	40.2%	25.3%	13.9%	17.4%	36.3%
2011	10.2%	8.8%	11.9%	5.1%	12.7%	30.4%	3.9%	10.2%	9.2%
Average	17.7%	11.6%	13.7%	14.8%	14.5%	19.0%	13.9%	12.1%	17.7%

The US dollar and 8 other major currencies versus silver

The silver price fell in 2011 against most currencies, with the weak Indian rupee being the notable exception. Silver’s results are presented in the following table.

Silver % Annual Change
	USD	AUD	CAD	CNY	EUR	INR	JPY	CHF	GBP
2001	-0.1%	8.5%	6.1%	-0.1%	5.3%	3.1%	14.4%	2.3%	2.7%
2002	4.8%	-4.6%	4.0%	4.9%	-11.0%	4.3%	-5.0%	-12.6%	-5.3%
2003	24.0%	-7.3%	1.4%	23.9%	3.2%	17.7%	11.9%	11.0%	11.9%
2004	14.3%	10.2%	6.5%	14.3%	6.4%	8.6%	9.6%	5.4%	6.5%
2005	29.6%	37.7%	25.5%	26.3%	48.1%	34.6%	48.8%	49.3%	44.4%
2006	45.3%	35.3%	45.3%	40.5%	30.4%	42.6%	46.7%	34.8%	27.5%
2007	15.4%	3.7%	-2.1%	7.9%	4.3%	3.1%	8.3%	7.2%	13.9%
2008	-23.8%	-4.3%	-5.7%	-28.8%	-20.1%	-6.1%	-38.1%	-28.2%	3.4%
2009	49.3%	16.1%	27.6%	49.3%	45.0%	42.6%	53.0%	44.9%	35.0%
2010	83.7%	63.0%	75.8%	77.7%	98.5%	77.4%	61.2%	66.2%	93.0%
2011	-9.8%	-11.0%	-8.4%	-14.0%	-7.8%	6.7%	-15.0%	-9.8%	-10.7%
Average	21.2%	13.4%	16.0%	18.4%	18.4%	21.3%	17.8%	15.5%	20.2%

Even though its price declined last year, silver has generated average annual rates of appreciation in all nine currencies that are higher than gold. So silver also fits well within a long-term accumulation plan, but only if you are prepared to accept the volatility that comes with it.