Effect of Currency Devaluation on Precious Metals  

Silvering Precious Metals LLC

Market 3 years ago
1 QCP
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Only few countries today tie their currency’s value to precious metals like gold. Instead, fiat currency values are more dependent on relative exchange rates and the domestic economic health of the countries issuing them. Many factors can lead to currency devaluation, including monetary policies, inflation, high unemployment, geo-political instability and so on. Some countries might also deliberately lower their currency valuation to stimulate their economies and promote exports.

Currency is what a nation’s economy majorly rides on. Its devaluation leads to lower purchasing power in the global arena. The resulting economic crisis can lead to depressed stock prices. During such downturns, investors are no longer concerned about generating substantial returns. Rather, they go for a risk management strategy, aiming to avoid future losses. But, if money is pulled out of the market, it doesn’t help matters. Over time, inflation diminishes the value of the currency sitting in bank accounts too.

This is why investors put their money in physical, tangible assets, like gold and silver. Precious metals are in limited supply and have inherent value that cannot be diluted. This means that they tend to keep their value intact, even during times of tough economic conditions and currency devaluation. Although the same can be said about real estate, for the average retail investor, precious metals are more logical investment vehicles. This is why their prices rise, with negative economic news. Gold is especially used as a hedge against inflation.

In short, lesser confidence in currencies in the world market drives up the price of precious metals.

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