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What does massive money-printing mean for gold?

Wednesday, July 28, 2021



It seems that the number of factors that have influenced the strength of gold is slowly growing from inflation, lower yields, the bitcoin crash and now it seems that record money printing can be added to the list of reasons for the momentous drive behind bullion and gold.

Overview

Within the last 18 months, the printing of money has increased by a record rate. Central banks have done this in response to the economic effects the COVID-19 pandemic has created. In turn this has weakened the purchasing power of paper money.

To put it into perspective, since January 2020, the US has created nearly 25% of all US dollars currently in circulation.

This is close to $5 trillion added out of nowhere into the economy in just over a year.

Why is extreme money printing a driver for gold?

The more money that is printed, the less it essentially is worth, as the value of a currency decreases during times of excessive money printing. Although the money an individual holds in the bank indicates the same amount, it means that it will, over time, start losing its value.

As money slowly starts to lose its value, investors begin to turn their attention to alternative ways to store and protect their wealth. This is where buying physical assets in gold becomes particularly attractive to investors. Historically gold has proven to hold up better against these types of economic risks.

Unlike paper money, which can be printed by the state at whatever rate they see fit, physical gold cannot be printed or created out of nowhere, which gives it a natural and intrinsic value – making it a safer bet for investors.