Gold bullion or cash – which provides the best safety net?

Gold bullion and cash both have a long history when it comes to creating a safety net for a rainy day.

We have all heard stories of people hiding cash in their mattresses, or in cookie tins in their attics and basements.

Another group of people have long favored stashes of gold coins, and have also found imaginative ways to hide them in and around their homes.

Both groups were squirreling away money, in one form or another, against a time when they would need it. To put it another way, they were creating a reserve or safety net, in the form of either cash or gold.

So which is the better choice? Cash or gold?

The clear winner is gold. Gold wins out for a variety of reasons, the most important being its ability to hold its value, and more.

Let’s look at the performance of gold and cash over the last 20 years, since 1992.

At the end of 1992 gold was worth just $332.90 an ounce. Today it is worth $1,691.60 an ounce. In other words, its value has increased by over 5 times.

On the cash side of the equation, annual inflation over the last 20 years means that if you had put $100 under your mattress in 1992, you would now need $163 to equal its original value or buying power. Annual inflation over the last 20 years has been pretty low, at an average of 2.49%. Imagine how much value that $100 would have lost if inflation has been higher, at 5%, 10% or more.

In other words, you’d be crazy to put your money into cash and hide it somewhere at home.

And it’s not just the falling value of your cash you have to worry about. Cash doesn’t do well if you home gets flooded, or catches fire. Gold survives just fine under water, and doesn’t melt at the temperatures reaching during a house fire. Mice and rats can eat cash, and have done, but they can’t eat gold.

Is there any way in which cash beats out gold as your preferred means of keeping some of your wealth at home? Yes, there is just one reason. If there is an emergency and you need to spend some money in a real hurry, you can use the cash immediately. With gold, you have to find a dealer and convert it into cash before you can spend it.

Well, there is an easy way to deal with that. Keep 90% of your stash in gold, and just 10% in cash. That way the gold will hold the value of your reserve, and the cash is there for immediate emergencies.

Regardless, you have to consider the one risk you run whether you are keeping gold or cash at home. You have to keep it safe from thieves. Which is why I’m a big fan of under-floor safes.

Own gold and keep it safe!

About the author: DH Kenrick is a student of world economics and a committed gold enthusiast. Follow me on Google+

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