The recent devaluation of the Pakistani Rupee (PKR) is a stark reminder of the country's economic struggles. In just one week, the PKR fell 18% against the US dollar, dropping from 225 to 270. Over the past year, the PKR has experienced 36% depreciation against the US dollar. With this significant drop, it's difficult to deny that the country's economy is in crisis. Turkey and Sri Lanka have also faced similar struggles, as their currencies depreciated by 28% and 44% respectively against the US dollar over the past year.
Such currency devaluations are often accompanied by high inflation, leading to increased prices for goods and services, including food, fuel, and others. This can have a negative impact on savers, who may see their savings lose value. Several countries are currently facing annual inflation rates higher than 50%, including Argentina, Iran, Lebanon, Sri Lanka, Turkey, and Zimbabwe.
At such times, money in the bank soon loses value. Other financial instruments, such as shares, are also very iffy – it is unlikely that the economy and the stock market will do well under such circumstances. This is where bullion scores. Gold and silver have both seen their value increase in the past 12 months. In general, the two precious metals do a good job of preserving purchasing power over time – not just months and years, but decades and even centuries.
For savers and investors, it is always a good idea to keep some of their wealth in the form of bullion. While bullion doesn’t generate a return, it does a wonderful job of preserving wealth. When all other resources go south, gold and silver still hold on to their value. Unlike most currencies, bullion is accepted all over the world. In India, there are a host of financial firms such as Muthoot and Manappuram, as well as many banks, which provide loans against gold. This makes gold an easily bankable and monetizable asset in India.
One lesson from the financial turmoil in Pakistan is to diversify your assets and keep some space for gold.