Up until the late 1960s, it was considered prudent for everyone to have some savings. By forgoing consumption, savings gave the ability to consume more at a later date through the accumulation of interest income.

This result is similar to what one hopes to achieve with an investment, but savings and investments should not be confused. A person uses money to make an investment, whereas saving is the process of accumulating money itself. Thus, you put your money at risk when making an investment, which hopefully will become a wealth-creating asset. In contrast, savings are meant to be riskless.

In the past, savings would typically be accumulated in a disciplined way on a regular monthly basis. An individual would take a savings book along with some cash directly to the bank, which would record the deposit. Alternatively, the bank acting under standing instructions would transfer a previously specified amount of cash from a customer’s current account to his/her savings account.

Beginning in the 1970s, countries around the world led by the United States began pursuing monetary policies that no longer encouraged savings. The relatively sound money that had previously prevailed, when it was said that the “dollar was as good as gold”, gave way to deplorable policy that ushered in decades of money debasement. Currency as a consequence has lost purchasing power over time, and the interest that banks pay on savings accounts has not sufficiently compensated the saver. In other words, even though the nominal value of a savings account rose from the interest income being earned, the overall purchasing power of the money being saved was losing value.

Over time, the concept of saving money has lost general acceptance. No longer do people put away money in a savings account for a rainy day, retirement, or even just to save money to purchase a consumer good. Nevertheless, the worthwhileness of these objectives has not been diminished by modern disruptions to money nor has the resulting monetary disorder changed the obvious necessity that everyone needs to plan and prepare for an uncertain future. So savings remain as important today as at any time in the past, which poses an obvious problem.

How can you save money today when central bank and government policy result in the erosion of your purchasing power when saving any national currency?

The answer lies in the money being saved. Save gold and/or silver instead of any national currency.

Since GoldMoney launched in February 2001, I have been recommending the on-going accumulation of the precious metals through a monthly cost-averaging programme. If one followed this recommendation by purchasing $100 of gold on the last business day of every month, regardless of gold’s price, the $14,800 saved in this way over the 148 months ending May 31, 2013 would have increased to $36,366, after all purchase and storage fees. A saver would have accumulated 26.114 ounces of gold (812.220 goldgrams), which represents a 13.4% annual rate of appreciation after the cost paid to GoldMoney for the services provided.

The results for silver were 1,558.036 ounces accumulated with a value of $34,632 for a 12.7% annual rate of appreciation, again after all costs paid to GoldMoney. The lower rate is a result of higher fees for silver purchases and storage as well as its underperformance over this period, during which the gold/silver ratio has climbed from 59.7 to 62.7 ounces of silver to equal one ounce of gold.

The accumulation of both gold and silver did better than money in a savings account. In nominal terms, the amount saved rose only by 1.6% per annum over this period, less than the 2.4% government reported annual inflation rate, and far less than the 9.4% inflation rate reported by ShadowStats, which is probably closer to the true rate at which the dollar is losing purchasing power.

It is worth noting that had a larger amount been saved through GoldMoney, higher rates of appreciation for both precious metals would result because larger purchases incur lower fees. But regardless, even when incurring a higher cost by saving only $100 per month, both precious metals increased your purchasing power without needing to follow market trends, or indeed, be distracted by the day-to-day noise impacting gold and silver prices. And your savings would be accumulating outside the banking system, even as the risks of bank deposits became increasingly apparent. Your savings would not be affected by the collapse of Northern Rock, Lehman Brothers, Cyprus or any future collapse, which is a benefit perhaps as important as the increase in your purchasing power. Overall these are the benefits that savings are meant to achieve, but one important question remains.

Saving the precious metals has been a good strategy for the past 12 years, but is it still a good strategy for the foreseeable future? Yes, for four reasons.

1. Accumulating savings is itself a worthwhile and valuable objective for everyone to prepare for an uncertain future, but saving a national currency results in the loss of purchasing power. In a continuation of the trend now well established over the past 12 years, gold and silver are likely to appreciate faster than the rate of inflation because central bank and government actions are debasing national currency, so demand for the precious metals will continue to grow.
2. The precious metals remain undervalued, as explained by my Fear Index and Gold Money Index. Silver remains undervalued relative to gold as evidenced by their historically high ratio.
3. Owning gold and silver are useful diversifiers for everyone’s portfolio. Diversification is always a good way to mitigate unpredictable outcomes and the risks from an uncertain future.
4. Gold and silver are money outside the banking system, which is still teetering on the edge of insolvency, meaning that more events like Northern Rock, Lehman Brothers and Cyprus are likely.

Consequently, saving a weight of precious metals suited to your personal needs by accumulating them through a disciplined cost-averaging programme remains a sound strategy to provide for an uncertain future. So for now, I continue to recommend it.