Very Important, I am not an investment or financial adviser. I cannot give investment advice. Karatbars is not liable for anything I say or do, it is all my own personal opinion. Please note I am an Affiliate of Karatbars and receive a small commission on all sales.

Friday, 27 September 2019

What Causes Inflation and Why Buy Gold?


fiat money,currency,not goldWhat causes inflation and why buy gold? You may well ask. Most of us tend to simply accept rising prices and not to question inflation. The Economists actually say we need inflation because it means the economy in growing and an economy with very low inflation is in trouble.

With the monetary systems as we have today it is true. Inflation is a sign of more money circulating meaning people are buying and if they are buying the goods and services needs to produced and thus there is work.

If an economy slows down the governments pumps money into the economy in the hope that it will cause people to spend. The problem is that psychology also plays a role in people’s spending decisions and more money does not always cause inflation and on the other hand too much money can cause hyperinflation. The human psyche cannot be pinned down by economic theory, thus, inflation as well as deflation sometimes as unintended consequences.

So basically I have answered you question, inflation is caused by more money circulating in the economy. More money chasing the good and services available and thus the prices escalate according to the normal mechanism of supply and demand. Causing inflation, and in bad circumstances hyperinflation

Now you may well ask me what this has to do with gold. Have a look at this graph that shows you how the price of Gold increased in Rand over the years. You will notice it is just up and up all the time. This means that the same amount of gold still has the buying power as 20 years ago. So a very good reason to buy gold for the future (Karatbars makes it easy and affordable) More about Karatbars

gold price, beating inflation
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Gold is your best hedge against inflation. This graph is for the Rand, but it is the same for almost any denomination. Inflation eats away at your savings

How is money created?
  • The government simply prints more money
  • Banks create money by the system of multiplying (fractional reserve banking, causing inflation)
  • Fiduciary money also created on computers

In the economy there actually exist different kinds of money:
  1. Commodity Money
  2. Fiat Money
  3. Fiduciary Money (not considered legal tender and depends on trust)
  4. Commercial Bank Money created by fractional reserve banking

If we have to be really correct Commodity Money is the only real money and Fiat Money is simply paper currency backed by nothing but the word of the government printing it! All of this is of course what causes inflation.

People really need to think about gold. Most people will say immediately that they cannot afford gold. Under normal circumstances that is true, considering the gold price. This is where Karatbars comes in with CashGold. You can buy in really small amounts for the price of a hamburger you can buy 0.1g of gold and slowly build up your Gold Cache, thus everybody’s gold cache! What is more, if you do not want it delivered they will store it for you. Karatbars however, delivers to more than 120 countries by FedEx.

I think what is important here is to realise that this is a slow building up of your gold cahce for a safer future, this is not a gat rich quick scheme, this is conscious saving for the future in a commodity that has been recognized as money from BC.

You will find that most economist agree these days that as a hedge against inflation it is a good idea to save in some gold


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