inflation graph

Gold’s Advantage as a Hedge Against Inflation

By Preserve Gold Research

In this tumultuous economy, rarely a day goes by when you don’t hear someone anxiously talking about inflation. It’s smart to be concerned because your spending power decreases as the price of goods and services increases. Inflation may be natural, but when it gets too high, the economy struggles to recover.

Maybe you’ve heard about the gold advantage and wonder whether this precious metal could serve as a hedge against inflation. The answer is yes! Gold’s value doesn’t fluctuate as wildly as the dollar’s, so it’s an excellent option if you’re interested in maintaining your investment’s purchasing power.

Gold: A Steady Performer During Periods of High Inflation

If you’ve heard investors talking about gold as an inflation hedge, this isn’t just speculation; it’s a fact. To prove it, let’s take a look at the 1970s when government spending and rising oil prices sent inflation skyrocketing.

The value of the dollar dropped so much during this time that the stock market crashed. Curiously, however, gold didn’t just hold its value but jumped significantly in price. By 1980, gold’s value had leaped from $35 an ounce to a whopping $850 per ounce.

And who could forget 2008’s global financial crisis? During this period, investors turned to gold as a means of asset diversification. As a result, by 2011, gold’s price had jumped from around $800 per ounce to more than $1,900 an ounce.

How Does Gold Maintain Its Value?

Why does gold perform better than the dollar during periods of inflation? One main reason is its perception as a safe-haven asset. Gold has historically performed well during times of high inflation, so demand for this precious metal increases when stormy financial clouds are on the horizon.

Gold also has an intrinsic value because of its scarcity. Unlike paper money, which governments can always print more of, it’s virtually impossible to produce more gold. Theoretically, gold can be artificially produced in nuclear reactors and particle accelerators, but the cost of doing so is about one trillion times gold’s market value. In short, when it comes to the gold vs. currency value debate, the shiny stuff wins out.

Gold vs. Other Market Volatility Protection Options

Real Estate Market

How does the gold advantage compare to other inflation hedges? Let’s take real estate, for example. Maybe you’re thinking of investing in real estate because everyone needs a place to live, so your investment is sure to hold its value.

However, the housing market is volatile, as are interest rates. When interest rates rise, fewer people want to buy a home. Additionally, your property’s value could plummet, and you may have to sell the property at a loss.

What about gold vs. other commodities, such as soy, wheat, beef, and natural gas? These can fluctuate wildly in value. For example, a year of bad weather could wipe out a crop, or the value of gas could decline as more people invest in electric or solar alternatives. Gold is also a commodity, but it’s unique in that investors can use it as currency. Thus, it holds its value better than other commodities.

Treasury Inflation-Protected Securities (TIPS) are another option you might be considering. While TIPS provide inflation protection and guarantee a return, they become less appealing during times of low inflation.

Your Options for Investing in Gold

You’d like to invest in gold, but should you opt for physical or digital gold? Owning physical gold is satisfying, and many people like knowing where their gold is at all times. However, the buying and selling process can be cumbersome because physical gold isn’t as liquid as the digital variety. You might have trouble finding a buyer and lose money on the sale.

Gold ETFs (exchange-traded funds) are a better option for many people. These funds hold physical gold on your behalf. You can buy gold ETFs on the stock market just as you would any other stock. When you sell, you’ll get the gold’s cash equivalent. It’s both highly convenient and very safe.

You might also consider investing in gold mining companies. With this investment, you’ll enjoy a share of the mining company’s profits. You can pick between major mining companies, which are well-established and easy to evaluate, or juniors, which are newer and less proven but offer a chance of high returns.

The Shining Advantages of Investing in Gold

Stack Of Gold Bars

The main benefit of investing in gold is that it provides an excellent way to maintain purchasing power over time. You probably won’t get big returns with gold, but because gold’s value typically remains stable, your investment isn’t likely to fluctuate significantly in value. This gold advantage could be appealing if you’re approaching retirement age and don’t want the volatility that comes with stocks.

Adding gold to your portfolio can also be a great way to reduce risk. Instead of owning purely dollar-based investments, which could sink your portfolio if the economy tanks, you’ll be better prepared to weather economic storms thanks to the liquidity of gold.

Challenges To Watch Out for When Investing in Gold

Gold may sound like the perfect investment, but it does have a few drawbacks to watch out for. One of these is that gold’s value can shift over the short term, but it’s important to remember that its value remains relatively stable over the long term.

When you invest in physical gold or a gold IRA, you’ll also have to pay for storage and security, which can cost several hundred dollars per year. If these fees are not worth your investment, you might consider gold ETFs instead of physical gold.

Does Gold Make Sense for Your Portfolio?

Thanks to its liquidity and historical stability, the gold advantage is shining bright for investors who want to protect their portfolios from inflation. That said, gold isn’t the right investment for everyone. Be sure to consider your risk tolerance, financial goals, and overall investment strategy before buying.

Unsure whether gold is for you? Reach out to Preserve Gold at (877) 444-0923 to learn why Americans are turning to physical gold and silver to help protect their retirement.

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