Posted 21st November 2023

The Role of Precious Metals in Currency Devaluation

Over a long enough time frame, the purchasing power of almost all fiat currencies has fallen dramatically, especially when compared to gold:

Source: World Gold Council

This chart shows the relative value of some of the major global fiat currencies over the last twenty years and it might be something of an eye-opener to those that don’t fully consider fiat money held in the bank an investment.

There are several reasons that currencies start to become worth less over time, but it mostly hinges upon the fact that more can be created or “printed” at any given time, and the currencies’ lack intrinsic or even extrinsic value – bills only carry value because society trusts the central banks that tell us that they do and general members of society accept this as true!

The US Dollar was, at one point in time, tied to the value of gold, but that was many decades ago: until January 1934 dollars could be redeemed for gold.

Historically, several countries have seen their currencies collapse, including: 

  • Argentina – the Argentine peso has collapsed no less than five times
  • Brazil
  • Chile
  • Hungary
  • Indonesia
  • Israel
  • Mexico
  • Peru
  • the Philippines
  • Poland
  • South Korea

 and Turkey. 

More recently, the currencies of Venezuela and Zimbabwe have seen their value plummet, becoming worth next to nothing. In Zimbabwe’s case, this was due to “Hyperinflation”.

Against the dollar, some of these currencies have lost 90 (Turkish Lira) -99.9% (Venezeulean Bolivar) of their value in the past two decades, give or take. 

Currency Devaluation and Its Implications

Currency devaluation has always occurred, but recent economic interest and monetary policy have shone a new light upon it and its implications. If a currency is losing value, that implies:

  • #1 Economic mismanagement – loss of confidence in a currency as a result of bad monetary policy can affect a currency very negatively
  • #2 Political instability – times of great political turmoil and division also impact currencies negatively
  • #3  Speculation – considerable in and outflows of capital are bandied around by speculators who can impact prices with large buy and sell orders 

Investors can expect that the reverse of these situations would be true in most cases. The Swiss Franc is known as a relatively stable currency, for example. 

Historical Data on Metal Performance

Current gold weekly view. Source:

Consider that the price of gold and silver doesn’t actually rise: it just costs more of your fiat currency to buy them. When you understand this, you’ll see why it looks like gold and silver have been growing exponentially for many years now, as – especially in silver’s case – demand heavily outweighs supply of these precious metals.

It consistently costs more dollars over time to buy gold, though that is not to say gold prices never go down; they do, usually as a result of macroeconomic and geopolitical events.

There is no reason to expect that gold will not continue to be an excellent investment thanks to its intrinsic value and fundamental use cases. 

Economic Factors and Currency Devaluation

Alongside the implications discussed earlier, there are several economic factors that could combine to drive currency devaluation. 

Inflationas seen across the globe currently, years of printing money with reckless abandon has led to rampant inflation and what’s being called a “cost of living crisis”. As the prices of goods and services increase, local currencies become less valuable. 

Trade deficits – typical supply and demand are at play here: if a country is importing a lot more than it is exporting, this can negatively impact the local currency as there is seen to be a lack of demand.  

Economic sanctions – as seen with the ongoing Russia-Ukraine conflict, economic sanctions around trade and financing can be deployed with potentially devastating impact, harming a country’s currency and its ability to sustain itself. 

Government debt – as seen with the US government’s recent increase to the debt ceiling – allowing for unlimited borrowing – printing more money to service the high levels of debt interest can have a long-term negative impact on a country’s currency. 

Central bank policy – hikes and cuts to interest rates, for example, impact the value of prices across most if not all assets. Typically raising rates is seen as negative.

Safe-Haven Investments in Turbulent Times

When we refer to precious metals gold and silver as “Safe-haven investments”, what we mean is that these investments tend to either hold or actually increase their value during economic downturns which may occur during geopolitical conflicts (in which goods become more expensive because fiat currencies are worth less).

To be considered a safe-haven investment, and asset must meet these criteria:

  • Stable – these assets should not experience as much price volatility as others.
  • Liquid – it should be easy to buy or sell these assets.
  • Recognised by institutions or governments – these should accredited by relevant bodies if not issued by governments. 

Examples include gold, silver and other commodities with inherent value.

Precious Metals can act as protectors  against devaluation

Gold and silver are both always in high demand: gold is being purchased at a constant rate by central banks around the world, whilst silver has several industrial use cases such as in electric vehicles that has seen the precious metal in a supply deficit for three years running.

Beyond this, investors need to understand capital appreciation, whether there are any storage costs, and whether their gold will provide a yield

As you can see, gold and silver have a long history as money and hedges against inflation, and thanks to Kinesis this will continue for the foreseeable future. Open your free account in minutes today. 

This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.

Read our Editorial Guidelines here.