With inflation rising quickly in both the United States and Canada, gold is once again back in the investor spotlight.
Here’s what is happening:
- The US in 2021 saw inflation increase 6.8% and reach a level that was last achieved in 1982, according to APnews.com.
- Canada saw its consumer price index increase 5.1 percent in January from what it was the previous year. That increase was the first time inflation exceeded 5 percent in the country since 1991, according to McGill.ca.
And historically, whenever inflation rears its ugly head, gold prices tend to increase.
So What Exactly is Inflation?
American economist Milton Friedman once said: “Inflation is a disease, a dangerous and sometimes fatal disease, a disease that if not checked in time can destroy a society.”
It is basically a phenomenon that arises when the quantity of money increases faster than output. There is only one cure for inflation: a slower rate of increase in the quantity of money.
The problem with inflation is that it reduces the present value of holding a unit of currency, similar to the effect of a negative interest rate on all currency in circulation.
In other words, the value of your money shrinks. That means suddenly:
- Housing costs more
- Food costs more
- Healthcare costs more
- Energy costs more
In fact, just about everything costs more.
Wages fall behind costs and your savings lose value. Retirees and others living on fixed incomes are usually hurt worst of all.
Is Gold the Ultimate Hedge Against Inflation?
Gold has long been considered a “safe haven” from inflation because unlike stocks or currencies, gold is an asset that cannot be simply created out of thin air – gold is tangible and finite.
That’s why gold has been able to retain its value throughout time. For instance:
- During the days of the Roman Empire, an ounce of gold would buy you a new tunic and sandals.
- Over a hundred years ago in 1915, an ounce of gold cost $20 – the cost of an expensive new suit.
- In 2015 that same ounce of gold cost over $1200 and still bought an expensive suit of clothes.
So with gold returning to the spotlight, where should investors look for the biggest gains? Here are three small cap gold mining stocks (more recent industry news) that may be poised to breakout in the current economic conditions:
- Calibre Mining – a gold mining and exploration company that is Canadian-listed. The company has acquired Limon and Libertad gold mines and the Pavon Gold Project.
- Revival Gold – this gold exploration and development company owns 100% interest in the Beartrack Gold Project located in Idaho.
- Labrador Gold – this mineral exploration company now owns 100% interest in the Kingsway Gold Project in Newfoundland.