Jeff Clark, Senior Precious Metals Analyst
We’ve all heard of the inflationary horrors so many countries have lived through in the past. Third-world countries, developing nations, and advanced economies alike—no country in history has escaped the debilitating fallout of unrepentant currency abuse. And we expect the same fallout to impact the US, the EU, Japan, China—all of today’s countries that have turned to the printing press as a solution to their economic woes.
Now, it seems obvious to us that the way to protect one’s self against high inflation is to hold one’s wealth in gold … But did citizens in countries that have experienced high or hyperinflation turn to gold in response? Gold enthusiasts may assume so, but what does the data actually show?
Well, Casey Metals Team researcher Alena Mikhan dug up the data. Here’s a country-by-country analysis…
Investment demand for gold grew before Brazil’s debt crisis and economic stagnation of the 1980s. However, it really took off in the late ’80s, when already-high inflation (100-150% annually) picked up steam and hit unsustainable levels in 1989.
During this period, investment demand for bullion skyrocketed 333%, from 20 tonnes in 1976 to 86.5 tonnes in 1989.
And notice what happened to demand when inflation began to reverse. Substantial liquidations, showing demand’s direct link to inflation.
Indonesia was hit by a severe economic crisis in 1998. The average inflation rate spiked to 58% that year.
Gold demand doubled as inflation surged. It’s worth pointing out that investment demand in 1997 was already at a record high.
Also, total demand in 1999 reached 120.8 tonnes (not just demand directly attributable to investment), 18% more than in pre-crisis 1997. But overall, once inflation cooled, so again did gold demand.
Gold demand hit a record of 774.4 tonnes, 13% above the record set just a year earlier. In fairness, we’ll point out that gold consumption was also growing due to a liberalization of gold import rules at the end of 1997.
When inflation cooled, the same pattern of falling gold demand emerged.
Egypt saw inflation triple from 2006 to 2008, and you can see consumer demand for bullion grew as well. Even more impressive is what the table doesn’t show: Investment demand grew 247% in 1998 over the year before. Overall tonnage was relatively modest, though, from 0.7 to 2.5 tonnes.
Vietnam and the United Arab Emirates saw similar patterns. Gold consumption increased when inflation peaked in 2008. Again, it was investment demand that saw the biggest increases. It grew 71% in Vietnam, and 27% in the United Arab Emirates.
And when inflation subsided? You guessed it: Demand fell.
In response, demand for gold coins, bars, and jewelry jumped threefold in the Land of the Rising Sun.
One of the biggest investment sectors that saw increased demand, interestingly, was in pension funds.
Unlike many of the nations above, citizens from this country of the former Soviet Union do not have a deep-rooted tradition for gold. However, in 2011, the Belarusian ruble experienced a near threefold depreciation vs. the US dollar. As usual, people bought dollars and euros—but in a new trend, turned to gold as well.
We don’t have access to all the data used in the tables above, but we have firsthand information from people in the country. In the first quarter of 2011, just when it became clear inflation would be severe, gold bar sales increased five times compared to the same period a year earlier. In March alone that year, 471.5 kg of gold (15,158 ounces) were purchased by this small country, which equaled 30% of total gold sales, from just one year earlier. Silver and platinum bullion sales grew noticeably as well.
The “gold rush” didn’t live long, however, as the central bank took measures to curb demand.
At one point, one bank, Banco Ciudad, even tried to buy gold directly from mining companies because it couldn’t keep up with demand. Some analysts report that demand has continued this year but that it has shown up in gold stocks.
With the amount of money the developed countries continue to print, high to hyperinflation is virtually inevitable. We cannot afford to believe in free lunches.
The conclusion is inescapable: One must buy gold (and silver) now, before the masses rush in. The upcoming inflationary storm will encompass most of the globe, so the amount of demand could push prices far higher than many think—and further, make bullion scarce.
Your neighbors will soon be buying. We suggest beating them to the punch.
Remember, gold speaks every language, is highly liquid anywhere in the world, and is a proven store of wealth over thousands of years.
But what to buy? Where? How?
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