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Cash vs. Gold: Which Asset Could Prove Better?

Currency devaluations. Negative interest rates. Minimal economic growth. During such turbulent times, how can diligent wealth-holders safeguard their earnings? Learn more about the benefits and disadvantages to holding cash over gold to make the best decision for your portfolio.

Benefits to Holding Cash

In uncertain times, increasing cash reserves and reducing exposure to volatile financial markets “obviously makes sense,” says John Mauldin of Mauldin Economics. Some seasoned gold holders prefer to limit their exposure to global instability, instead opting to safeguard their wealth with reserves of cash and gold. Many turn to cash in particular because:

Cash is flexible. As an opportunistic asset class, cash could give you flexibility when you need it most. If a “once-in-a-lifetime” opportunity comes up, you're able to take advantage of it if you have enough cash or other liquid assets on hand.

Cash is familiar. From how it looks to how it feels, cash is familiar to you and your family. How you spend it, save it, and store it comes second nature. If you're new to gold, you may not readily understand how to buy and store it.

Holding cash requires minimal interaction with others. While you may interact with the clerk at the bank, there are few other personal interactions that occur when you hold cash.

Disadvantages to Holding Cash

New gold buyers may not understand the potential disadvantages to holding cash over gold. From a historic and economic perspective, there are many reasons why gold could prove to be a better performing asset than only holding cash:

Cash could be diverted from your bank account. “Few people understand that once you deposit your money into a bank account, it is no longer your legal property,” advises Michael Lingenheld, Forbes Contributor and Managing Editor of Cup & Handle Macro Research. Governments have a history of diverting money that is held within the banking system. Most recently, the government of Cyprus diverted funds from individual bank accounts to save the government from defaulting on its debt.

These types of occurrences are a reality for struggling governments, but also for U.S. citizens. The IRS has regularly seized the bank accounts of small businesses and individuals who make deposits of $10,000 or less, and who've broken no laws. Though former Attorney General Eric Holder has condemned such forfeitures, it's hard to “reverse precedent of this nature,” adds Lingenheld.

“Holding onto cash will not make you wealthy,” says John Mauldin, also referenced earlier. Central banks can devalue a currency overnight simply by printing more money. The same cannot be said for gold. Since America moved away from the gold standard in 1971, the purchasing power of the dollar has declined 85 percent, calculates Peter Ferrara, former Associate Deputy Attorney General of the United States under President George H.W. Bush. His estimates further show that a dollar saved in 1971 was worth a mere 15 cents by 2012. The price of gold, on the other hand, remained relatively the same per ounce between 1833 and 1920, then jumped to more than $1,700 for nearly 100 days throughout 2012.

Gold is currently priced around $1,325 per ounce, with some analysts predicting that it could climb above $1,600 by the year's end. Has the U.S. dollar followed suit? No. According to Ferrar's calculations, a dollar was worth 1/20th of an ounce of gold at the time the Federal Reserve was established in 1913. By 2010, that same dollar was only worth 4 cents.

Benefits to Holding Gold

Seasoned gold buyers understand the profit potential behind the precious metal. When it comes to safeguarding their hard-earned wealth, their cash may be better off in gold, not paper money, for the following reasons:

Gold could be far more efficient than cash at storing wealth. Interest rates remain low, meaning that your money in the bank “earns virtually nothing,” reports CNN Money. When you account for inflation, that cash may have actually lost value.

Gold is recognized as a having a long-term record of stability. The U.S. has had a completely paper-based currency for 45 years, while gold has been a medium of global exchange for more than 5,000 years. “What people look for is something that’s an insurance policy, an asset that holds its value in times of trouble,” says Avinash Persaud, senior fellow at the Peterson Institute for International Economics. “You don’t want uncertain reserve assets.” With a track record of more than 5,000 years, gold could be the opposite of “uncertain.”

Gold is not a fiat currency. Fiat currencies derive their worth from the issuing government. Unlike paper money, gold cannot be expanded to suit the needs of struggling central banks. Due to its inherent scarcity, gold will always be supported. This precious metal has maintained its purchasing power over long periods of time, unlike all of the fiat paper currencies that have been introduced over the years, reports Forbes’ Michael Roney.

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Gold: “A critical hedge against global instability,” reports Forbes

With the Brexit votes counted, the U.S. presidential election on the horizon, and interest rates in flux, it’s apparent that turbulent economic times are here. Accordingly, gold prices may never be this low again. Call 1-844-307-1589 and talk to one of U.S. Money Reserve's Account Executives about your financial goals and how you may be able to turn your paper money into gold, a long-standing safeguard for wealth. Account Executives are standing by now to take your call!


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