If you have a TallyMoney account, you’ve probably noticed that your tally balance can both grow and dip in the short term when measured in pounds. Holding tally means you own real, LBMA-accredited gold, and whilst it can be unsettling to see a short term dip, it’s important to remember that the long term trend is clear – gold is growing in price.
In fact it has grown by an average of 12% per year since the year 2000.
By contrast, fiat currencies like the pound are losing purchasing power due to inflation and non-stop money printing. This is also a long term trend that isn’t going away any time soon.
So why then do gold fluctuations happen in the short term? Let’s unpack this question in greater detail.
Why gold fluctuates in the short term
The first thing to understand is that gold fluctuations are completely normal. Gold has been used as a store of value for thousands of years, and throughout history its price has never moved in a straight line.
Short term fluctuations in the price of gold happen because its value is always being measured against fiat currencies like the pound, and these are constantly changing.
Why? Because inflation, interest rates, and political uncertainty all affect how much confidence people have in fiat currencies. When that confidence shifts, the amount of currency required to buy the same amount of gold changes.
What matters is not what happens over a few days or weeks, but what happens over many years. Or to put it in simple terms: Focus on the long-term trend, not short term movements.
When in doubt, zoom out
Remember, gold has experienced over 26 years of consistent annual growth.
And that growth has not been without its dips. There have been plenty of short-term gold fluctuations, including pullbacks and flat periods.
Yet when we zoom out, it’s clear that over the long term, gold has consistently increased in value relative to the pound.
Why? Because the pound itself is getting weaker and will continue to do so. Pretty much everything costs more today than it did 20 years ago, and gold is no exception.
This is why it’s important not to let short term dips distract you from the bigger picture – the pound is losing value and gold is growing over the long term.
Why the pound loses value over time
So why does the pound lose purchasing power over time? Why do everyday costs seem to rise year after year, even when nothing about the product itself has changed?
There are two main forces at work.
Inflation
Inflation is the gradual increase in prices across the economy. It exists by design because governments prefer people to spend and borrow rather than save their money. This keeps money moving through the economy but the trade-off is that your money is worth less and less every year.
Inflation silently eats away at the value of your savings and its effects compound over time. A small increase in the inflation rate may not seem significant, but over a decade or more it can severely reduce your purchasing power.
Money creation
In addition to inflation, the government and the Bank of England are constantly increasing the supply of pounds. They do this to service the huge national debt we now have and fund various spending programmes.
Expanding the money supply means that each individual pound is diluted. This means that even if your bank balance remains the same, you’re able to buy less and less with the same amount every year.
Because this erosion of your purchasing power happens quietly, it’s easy to overlook. There is no daily alert telling you that your pounds are worth less than they were last year.
Gold is different. It has a limited supply and can’t be printed out of thin air.
The bigger picture
Gold fluctuations can feel unsettling if you only look at short timeframes. But history shows that focusing too closely on short-term movements misses the point.
What matters is the long-term trend.
Gold has preserved value for thousands of years, and TallyMoney gives you a modern way to store your savings in gold and buy things in pounds (or any local currency).
This means you get the best of both worlds:
- The purchasing power of your savings is protected over the long term
- You get the perks of everyday banking including payments, transfers, account number, sort code etc
Short-term fluctuations are normal. Long-term value preservation is the reason gold exists at all.
And that’s why tally fluctuates.
