Inflation

Up, up and away [in my] my beautiful, my beautiful balloon
-lyrics by the Fifth Dimension

In recent years the U.S went through an odd economic period where some price indexes actually fell (deflation). Last year inflation was officially just 1.6%. But the times they are a'changing. Inflation is on the rise around the globe and may soon hit our shores. See Can the U.S. Sidestep Growing Global Inflation?,

"Inflation in Britain hits 4%, double the official government target. China reports prices accelerating at 4.9% in January. And Spain says its inflation measure shot up 3% last month. ... the inflation scourge [is] now sweeping countries as far away as Brazil, India and the U.K."

From Forbes.com, America, poised for a hyperinflationary event?

At Instapundit.com, "I'm going to wish I'd listened to Glenn Beck and bought a lot of gold."

To which an Instapundit reader responded, "You’re going to wish you had some food storage first before you wish you had gold. In Weimar Germany there were people in the cities that starved because they had no food. [Could not afford to buy it with hyperinflation] Sure you can buy food with gold, but gold denominations (even the 1/10 oz American Gold Eagle) are not practical for buying groceries or a sack of potatoes."

The same point is made at SurvivalBlog.com, "What would a full ounce of gold buy?  That Corvette that we saw advertised?  A half a dozen cows?  Maybe.  It certainly wouldn't do much good for someone trying to buy day-to-day necessities. "

Bottom Line

For protection against simple inflation, build a food storage now. To learn more about hyper-inflation see this post I wrote in 2009: HyperInflation

My post, Five unusual items for your emergency supplies, talks about stocking items for trade or barter in your food storage. Alcohol and cigarettes are valuable during difficult time but not something I would personally stockpile.  Consider items like diapers, aspirin & medical supplies, and nails which can be better than gold under the right circumstances.

The Allure of Gold

"And when they were come into the house, they saw the young child with Mary his mother, and fell down, and worshipped him: and when they had opened their treasures, they presented unto him gifts; gold, and frankincense and myrrh" - Matthew 2:11 KJV

With financially unstable times, some investors put their money in gold. But why gold, what makes gold so special? NPR Money Planet asked Sanat Kumar, a chemical engineer at Columbia University, to examine the 118 elements in the Periodic Table to find which ones could be used as money.

The orange column on the far right is all gasses - so cross that off.

The light orange elements on the far left are very reactive and can burn or explode. Sanat crossed out another 38 elements as too reactive for safe keeping.

The two rows on the bottom of the chart are radioactive; cross them off.

These three rules: Not a gas, Doesn't corrode or burn, and Doesn't kill you, reduces the list of usable elements from 118 to just 30.

Some of the 30, like carbon, are just too common to be "valuable". Imagine a currency that anyone can make from wood!  And a few of the 30 are just too rare  - for example osmium comes mostly from meteorites.

Eliminate the too common and extremely rare and you are left with five "precious metals", rhodium, palladium, silver, platinum and gold. Silver is popular and used as a currency but it tarnishes; it is mildly reactive with air. I'm not that familiar with rhodium or palladium and apparently few are, they were not discovered until the early 1800s due to their rarity. They belong to the platinum group of metals. One quarter of all goods manufactured today either contain platinum group metals or the platinum group metals play a key role during their manufacturing process.

That leaves platinum and gold as safe, non-reactive metals, both of which can be found in rivers and streams in limited but not super rare quantities. Gold was preferred because it melts at a lower temperature (just under 2000 degrees Fahrenheit) and could be fashioned into art and coinage by pre-industrial people. Gold artifacts in the Balkans appear from the 4th millennium BC.

The melting point for platinum is over 3,000 degrees Fahrenheit.

Sanat says,  "For the earth, ... gold is the sweet spot. It would come out no other way."

According to Wikipedia, "Gold has been widely used throughout the world as a vehicle for monetary exchange ... [but] pure gold is too soft for day-to-day monetary use and is typically hardened by alloying with copper, silver or other base metals. The gold content of alloys is measured in carats (k). Pure gold is designated as 24k. English gold coins intended for circulation from 1526 into the 1930s were typically a standard 22k alloy called crown gold."

Modern bullion coins used for investment are frequently pure gold. The popular Canadian Gold Maple Leaf coin has a purity of 99.99%.

Bottom Line

How rare is Gold? We see it everywhere as gold leaf, gold wire connections in computer chips, gold fillings, etc. There is an estimated 158,000 British tonnes of gold that has been excavated globally. This sounds like a lot but gold is very heavy,  a cubic meter of gold would weigh 19.3 tonnes. All the gold in the world would fit inside a cube 20.15 meters, or 66 feet 1.3 inches on each edge. Consider that the Washington Monument measures 55 feet by 55 feet at its base and is 555 feet tall (17 x 17 x 170 m). If you wanted to rebuild the Washington Monument in solid gold, all the gold known to man would only reach 1/3 the height of the monument.

Platinum is slightly more rare. All of the platinum in the entire world would easily fit inside the average home.

Gold

Have you ever wondered why gold is an expensive and valuable commodity? Yes it is a very pretty metal, easy to work with, great for making decorative work. But the quote below from SurvivalBlog.com gives the answer...

"How rare is gold? If you could gather together all the gold mined in recorded history, melt it down, and pour it into one giant cube, it would measure only about eighteen yards across! That's all the gold owned by every government on earth, plus all the gold in private hands, all the gold in rings, necklaces, chains, and gold art. That's all the gold used in tooth fillings, in electronics, in coins and bars. It's everything that exists above ground now, or since man learned to extract the metal from the earth. All of it can fit into one block the size of a single house. It would weigh about 91,000 tons - less than the amount of steel made around the world in an hour. That's rare." - Daniel M. Kehrer

Bottom Line

A few years back one of the museums in New York City held a special exhibit on gold. They built a room the size of the world's gold cube so you could stand inside and experience the total amount of known gold in the world. It's amazing how so little gold can go a long way.

Many survivalist get excited about gold as a hedge against inflation and protection against a currency crash. Personally I wouldn't know real gold from fake, so I worry about being swindled when gold is exchanged. I'd rather stockpile food. You can not eat gold.

Yet there are times when gold can be useful. When friends of ours lived in Saudia Arabia, they discretely wore some gold jewelry. If they ever had to evacuate the country quickly, the gold would help bribe their path to escape.

Here is a recent story online about gold...

GOLD HITS RECORD HIGH ON LOSS OF FAITH IN DOLLAR: “Gold prices on Tuesday surged to an all-time high after India’s central bank bought 200 tonnes of the precious metal, swapping dollars for bullion as the country’s finance minister warned the economies of the US and Europe had ‘collapsed’. India’s decision to exchange $6.7bn for gold equivalent to 8 per cent of world annual mine production sent the strongest signal yet that Asian countries were moving away from the US currency.”