Eric Sepanek
SBC Founder
Eric Sepanek is the founder of Scottsdale Bullion & Coin, established in 2011. With extensive experience in the precious metals industry, he is dedicated to educating Americans on the wealth preservation power of gold and silver.
In the choppy waters of the modern economy, there’s an ongoing gold vs cash debate about which asset is the most effective life raft for your portfolio. Gold proponents point to its stability and inflation-hedge properties while cash advocates tout the USD’s buying power and flexibility.
In reality, there are advantages and considerations of both gold and cash. Understanding both sides of the gold vs cash argument can give investors crucial insights into the ideal asset to hold given their unique goals.
| Cash | Physical Gold | |
|---|---|---|
| Asset Type | Bills, coins, and digital representation | Bars, coins, bullion, and jewelry |
| Storage | Held in banks, digital accounts, or personally | Requires a secure storage location such as a safe or private depository |
| Liquidity | Highly liquid and readily accepted for virtually all transactions | Less liquid and requires more steps to sell |
| Usage | For everyday transactions and expenses | For investment purposes and practical applications |
| Inflation Resistance | Highly susceptible to inflation | Tends to keep pace with inflation |
| Growth Potential | Little to no growth; decreases in value by 2-3% annually on average | Moderate to high, depending on market conditions |
| Privacy | Traceable digitally and physically | Limited reporting of SSN or tax forms |
Asset Diversity
Although gold and cash come in both physical and digital forms, the latter leans more heavily towards tangible assets.
- Cash: While the US dollar exists in both physical and digital forms, the vast majority of transactions are conducted digitally. The physical manifestations of the dollar include banknotes, more commonly referred to as bills, and coins. However, most people are more likely to interact with cash in its digital representations, such as online bank accounts, digital wallets, and electronic transfers.
- Gold: Like cash, gold exists in both paper and physical forms. Paper gold includes assets such as gold ETFs, mutual funds, and mining stocks, which provide indirect exposure to the gold market. Physical gold, offering direct exposure, comes in various forms, including coins, bars, and bullion. This variety gives investors flexible options for investment and protection against market volatility.
Storage
How these assets are stored strikes upon a practical yet essential point in the gold vs cash discussion.
- Cash: Generally, experts recommend people hold sufficient physical cash to cover potential emergency expenses. However, people tend to hold the rest of their cash in bank accounts or digital wallets. Relatively low bank and wallet fees and robust FDIC insurance make storing cash cost-effective, straightforward, and low-risk.
- Gold: While paper gold assets are stored digitally on trading platforms, physical gold requires a bit more due diligence. If you’re holding gold at home, it’s highly advisable to invest in a secure safe. When investing through a gold IRA, investors usually place their assets in a local or national storage option with a reputable provider. Insurance is recommended for further protection.
Liquidity
Liquidity, the ease of buying or selling an asset, helps determine the most effective roles of gold and cash for investors.
- Cash: Cash is widely acknowledged as the most liquid asset due to its near-universal acceptance, primary use for daily transactions, and backing by the US government. Whether you want to exchange cash for a product, service, or investment vehicle, the transaction is smooth and streamlined.
- Gold: Despite not being quite as liquid as cash, gold is still recognized as a highly liquid asset. The yellow metal’s high demand among investors and central banks alike, millennia-long track record of use, and price stability contribute to quick and hassle-free transactions.Recently, gold has been officially recognized as a Tier 1 asset in the global banking system, placing it on the same level as fiat currency and government bonds in terms of liquidity
Usage
Comparing the primary usage of gold vs cash can shed light on the investment merits of each asset.
- Cash: Cash is almost exclusively used for daily transactions. Since the abandonment of the gold standard, fiat currency has been the primary medium of exchange for goods and services for every country. However, cash’s susceptibility to inflation makes it a poor investment vehicle or store of wealth.
- Gold: Although gold boasts a lengthy history as currency, it’s predominantly used as a store of value in modern times. The yellow metal’s tendency to rise in value as the economy sinks makes it a popular asset for hedging investment portfolios and retirement accounts against the volatile market. Even central banks, the largest and wealthiest investors in the world, prefer gold over the US dollar when it comes to shoring up their reserves.
Inflation Resistance
Inflation is an inescapable reality of modern economies, making it a crucial metric when comparing the performance of gold vs cash.
- Cash: Inflation directly erodes the buying power of cash, making it highly susceptible to economic downturns. With a fixed nominal value, the worth of currency doesn’t increase as the cost of living rises. In the past decade alone, the dollar has lost 25% of its purchasing power. People primarily invest their wealth instead of holding cash because of the USD’s vulnerability to inflationary pressures.
- Gold: Gold has always been recognized for its tendency to keep pace with inflation. In some instances, the yellow metal even outpaces it.For example, in response to the inflationary 2007-2008 financial crisis, gold prices shot up from around $800 to over $1,800 within just a few years. Similarly, gold surged from $36 to just shy of $680 during the hyperinflation of the 1970s and early 1980s.Since the 1970s, gold has maintained an average annual growth of 8%, far outpacing the dollar’s average devaluation.
Growth Potential
The gold vs cash distinction is perhaps most clear when looking at the growth potential of these assets.
- Cash: Although the US dollar’s buying power fluctuates relative to the cost of goods, it generally trends downwards. The Federal Reserve’s stated goal is to manage inflation at 2-3% a year, a tacit acknowledgment of cash’s tendency to depreciate. Cash equivalent investments, such as Treasury Bills or money market funds, don’t do much to offset this depreciation with modest returns of 0.5 to 5%.
- Gold: Gold might be thought of primarily as a hedge against inflation, but it has a proven track record of wealth accumulation when held for the long term. Between 1995 and 2025, gold prices have notched a formidable 784% gain, jumping from an annual high of $396/oz to a record of $3,500/oz.
Privacy
The gold vs cash dialogue extends to privacy, where many investors feel vulnerable in the 21st century.
- Cash: Fiat currency has differing levels of privacy across its digital and physical forms. Digital currency is easily traceable by financial institutions and governments. Although bills are slightly harder to track, there’s a paper trail left behind with each Treasury note containing a unique serial number.
- Gold: In stark contrast, physical gold offers heightened privacy and anonymity due to its tangible nature. It’s possible to invest in gold assets without providing your social security number or other tax information, thus limiting the government’s insights into your holdings.
Is gold better than cash?
When weighing gold vs cash in terms of investments, the “best” asset is wholly dependent upon your specific goals. For example, if high liquidity and financial agility are the main objectives, cash would win. However, gold is the answer if you’re looking for wealth preservation, price stability, portfolio diversification, and even financial growth in the long run.
In reality, most investors will hold a combination of gold and cash in their portfolios. The precise allocation to each asset varies based on ever-changing economic conditions and evolving personal investing aims. There’s rarely, if ever, a time when it’s advisable to jump completely into gold or cash.
Why is gold more valuable than money?
Ever since the abandonment of the gold standard in the 1930s, the US dollar’s value has declined by 99% compared to gold. Keep in mind that the greenback is considered the strongest fiat currency on the planet. There are a few key reasons why gold is more valuable than money:
- Rarity: Gold’s natural scarcity prevents it from being devalued by a large influx of supply. On the other hand, fiat currency is subject to immense inflation due to an unlimited money supply.
- Historical Performance: Gold’s history of value reinforces its continued use as a store of wealth and investment vehicle, compared to the dollar, which has lost tremendous value over the decades.
- Inherent Value: Unlike cash, subject to the whims of a volatile economy, gold assets boast inherent value derived from their limited supply, sustained demand, and prolonged history of use.
If you’re looking for more information on the investment merits of gold vs cash, grab a FREE copy of our Precious Metals Investment Guide. It covers everything investors should know about the benefits of diversifying with gold and silver assets.