Is Gold a Good Investment to Protect Against Inflation?

Is gold a good investment to protect against inflation

No matter if you opt for physical gold coins and bars or invest in an ETF linked to gold, precious metal investments offer protection from inflation in the long run.

Geopolitical uncertainty is often one of the primary motivations for investing in gold. But negative real rates also present compelling arguments to diversify with it in their portfolios.

What is Inflation?

Inflation is an economic phenomenon which arises when prices increase faster than wages, diminishing an individual’s purchasing power and prompting investors to seek investments that outstrip inflation. As such, investors search for assets which outperform inflationary pressures.

Gold is one of the more reliable investments, having shown itself to perform exceptionally well during periods of high inflation. But keep in mind that its price can fluctuate as well.

Gold is widely considered to be a secure investment and serves as both an inflation hedge and portfolio diversifier, thanks to its low or negative correlation with stocks and bonds. Furthermore, unlike currencies produced by central banks like dollars or eurodollars, its supply is limited allowing it to less likely experience hyperinflation while simultaneously maintaining value over the long term unlike many other investments that only thrive during short-term inflationary cycles.

Why Should I Buy Gold?

Gold investments may provide one method of protecting yourself against inflation. According to the World Gold Council, its value has continued to appreciate during years of high inflation.

Gold prices tend to gain ground more rapidly during periods of high inflation due to being priced in fiat currency like the dollar; therefore, when inflation surges further gold will not appreciate as quickly.

However, it should be remembered that gold may not always act as an effective inflation hedge – its correlation to inflation over the last century has been fairly weak – though many experts still consider it an essential component of any investment portfolio.

How Can I Buy Gold?

Many people turn to gold as an effective hedge against inflation because its value remains steady despite consumer price increases. While stocks and bonds may experience price fluctuation as inflation activity ramps up, gold’s response remains more consistent.

But since it doesn’t produce interest or dividend income, and can be volatile, you should diversify your portfolio with other assets which provide inflation protection – like Treasuries or Treasury Inflation-Protected Securities (TIPS).

TIPS offer an attractive rate of return while mitigating inflation risk, but their lower yield than gold and lack capital appreciation could make them unsuitable for many investors. A better choice may be buying physical precious metals and holding onto them privately – however, finding a trusted retailer who can store your gold securely may require further research.


Gold has long been seen as an effective hedge against inflation, but it has recently proven less so. That doesn’t mean investors should forego using this precious metal in their portfolio; rather they must carefully weigh its benefits against its inherent volatility and storage costs before deciding.

Precious metals are finite resources that cannot be created or destroyed, making them attractive investments to investors looking to hedge against rising prices. Investors should carefully evaluate any risks involved when investing in precious metals and store their assets with a reliable provider to avoid theft or loss.

Investors who relied on gold as an inflation hedge during the COVID-19 pandemic of 2020-2021 were likely disappointed to discover its prices declining while consumer price inflation skyrocketed to multi-decade highs. These results demonstrate why gold may not be suitable as an inflation protection hedge and may be better invested elsewhere such as stocks or cash instead.

Raymond Banks Administrator
Raymond Banks is a published author in the commodity world. He has written extensively about gold and silver investments, and his work has been featured in some of the most respected financial journals in the industry. Raymond\\\'s expertise in the commodities market is highly sought-after, and he regularly delivers presentations on behalf of various investment firms. He is also a regular guest on financial news programmes, where he offers his expert insights into the latest commodity trends.

Categorised in: