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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

What “Intrinsic Value” Really Means in Inflation Proof Investing

Stock-Markets / Investing 2010 Dec 08, 2009 - 06:36 PM GMT

By: Dr_Jeff_Lewis

Stock-Markets

Analysts, financial planners and so called “experts” tout a variety of anti-inflation investments, ranging from commodities like oil and coal to sophisticated instruments like inflation-protected treasuries and annuities.  Although all these products may seem to be inflation-proof on paper, none have the intrinsic value of gold, silver or any other precious metals.


Intrinsic Means Forever

Intrinsic value does not mean that the product may have value for some time, or even for a long time.  Instead, intrinsic value denotes value forever, and that value remains relatively unchanged and equal to the same amount today as it was thousands of years ago. 

Gold and silver are some of the only products with intrinsic value (excluding food and shelter) because they've been demanded for thousands of years.  In addition, they still purchase the same goods today as they would in ancient times.  The best example is that of the custom suit, which can be purchased today for $1100 (the price of an ounce of gold), just as it could during the 1940s and ancient times for an ounce of gold. 

Anti-Inflation Investments Must Have Intrinsic Value

In order to be a truly anti-inflation instrument, the investment itself must have intrinsic value.  Gold and silver have each produced returns that compare to inflation, making them suitable as safeguards. 

In contrast, a popular recommendation like oil hasn't been used until the last few centuries, and it wasn't even until the 20th century that producers stopped discarding gasoline and used it for energy.  Therefore, while other commodities like oil, coal, coffee, and pork bellies may rise and fall with inflation, they have no intrinsic value – which means they have no place as a long term hedge against inflation. 

Paper Inflation-Protected Products

Frequently, some of the most “practical” anti-inflation investments are also the largest shams in the investing world.  True, inflation-protected securities require no storage space and can be bought and sold on a dime, but how does this translate into intrinsic value? 

Treasury Inflation-Protected Securities, or TIPS, are one of the more popular products for inflation protection.  TIPS are unlike other government debt; they are indexed to inflation to always provide a return that is greater than inflation.  However, the proof is in the pudding.  TIPS are indexed to the change in inflation based on the Consumer Price Index, which almost always lags true inflation of the money supply.  In addition, TIPS rely on counterparty risk and are only as good as the agency backing them, which is the US government. 

TIPS lack any intrinsic value, as more of them can be created just by printing! 

The Real Value

When it comes to safety and security, no other instrument compares to real physical gold or silver.  History suggests that gold and silver have always accurately reflected the change in inflation and protected investor's wealth against poor economic conditions.  In addition, unlike empty promises and inflation-protected notes, gold and silver coins are tangible and can be held in your hand.  In today’s economic world, you need an investment with intrinsic value: gold or silver.    

By Dr. Jeff Lewis

Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com and Hard-Money-Newsletter-Review.com

Copyright © 2009 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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