How Gold Is a Solid Hedge Vs. Inflation

Purchasing gold investments is truly an intelligent way to add diversity and stability to your portfolio. This is especially true for those who want to hedge their bets against inflation.

As you may or may not know, there are a number of different ways to purchase gold and each strategy differs from the other. For example, some of the ways to purchase gold include:

  • Buying physical gold (coins, bars, and rounds)
  • Buying gold miners stocks
  • Buying gold ETFs
  • Buying physical precious metals in a gold IRA

In our opinion, buying physical precious metals is the only true way to hedge your bets against inflation. And it’s the best way to protect your portfolio because currencies may collapse, but physical gold is never going anywhere. It’s the most sought-after form of legal tender for over 3000 years.

Gold is truly incredible because its sole purpose is to store value. Unlike other investments, it wasn’t designed to help investors earn a dividend every month or every quarter. It wasn’t designed to operate as a business, so you’ll never have to worry about the commodity suddenly crashing due to a poor quarterly earnings report.

And it wasn’t even designed to be used to make payments, although it’s certainly an acceptable source used to pay other people at certain times. Although if we ever decided to eliminate the US dollar for one reason or another, it would actually be easier to pay for things with silver because of its lower monetary value.

The Primary Benefit of Investing in Physical Gold

In truth, many people fail to realize the primary benefit of investing in physical gold. Guess what? The biggest benefit of this investment strategy is its safe haven capabilities. It’s the safest place to put your money during uncertain times.

What does that mean? It means when inflation begins rearing its ugly head, investors could take their money out of the stock market, stop investing in low interest earning treasury bills, and take it out of other markets and put it into physical gold. Because gold tends to gain value during tough economic times and times of inflation.

As an example, let’s take a look at the past month. Inflation is running rampant right now, yet the value of gold has increased by more than $100 per ounce. Do you think this happened by accident? No, investors realized that they cannot take the pain of inflation and crashing stock and housing markets any longer so they needed to move to a safer investment strategy. They took their money out of these other markets and decided to invest in gold because the timing was right.

Why is Gold Such an Effective Hedge against Inflation?

The answer to this question simply comes down to economic research. The World Gold Council research this topic thoroughly and here’s what they came up with:

When inflation continues to grow and outpace increases in interest rates, which is exactly what we’ve been seeing in the past six months, many traditional financial assets falter and commodities including gold tend to grow in value. They really outshine the competition.

For example, we experienced massive inflation during the 1970s under Pres. Jimmy Carter’s administration. In 1970, at the beginning of the decade, the interest rate was 5.84%. By the end of the decade going into 1980, the interest rate grew exponentially to 13.58%, which is a massive increase to say the least.

Do you know what happened to the value of gold during this same period? In 1970, the value of gold started out at $35 per ounce. Try to guess what the value of gold ended up at in 1980? Can you take a stab at it? I’ll end the suspense now and tell you that the value of gold was $850 per ounce in 1980, according to data shared by NASDAQ.

How crazy is that? Nothing is set in stone and this asset class – meaning physical gold – will not necessarily follow the same trend just because it did so in the past. But if you look at the current evidence and the recent increase in the value of gold, it seems like gold is going to continue increasing exponentially during this tough inflationary environment.

Who Will Benefit from Buying Physical Gold during Inflationary Times

Are you thinking about buying gold because of massive inflation? Are you concerned with stock market crashes and another potential mortgage crisis? Investing in commodities like precious metals is always a great idea during these difficult environments. They often withstand currency devaluations and cash flow problems much better than any other asset classes, including stocks and ETFs.

While many people think of older Americans buying gold and associated with this commodity, it’s actually in the best interest of younger Americans to also consider investing in gold and other precious metals. I’m not saying you should allocate your entire portfolio to investing in gold. But you should definitely take a percentage of your portfolio and put it in gold to accrue greater wealth during tough inflationary times.

Why young people? Nobody could definitely predict how the market is going to go one way or another. As a young person, you have the ability to take bigger financial risks. You can take more risks than an older person who needs to rely on the money that they have without worrying about their investments crumbling as they continue to age.

Also, it’s generally a good idea for young people in their 20s and 30s to start investing in precious metals and other retirement investment vehicles like a gold IRA. The younger you start, the easier it will be to retire comfortably as you make your way toward your golden years.

Overall, it’s never a bad idea to invest in gold. It is definitely a hot commodity and a solid hedge versus inflation. I suggest investing in gold sooner rather than later to protect your wealth against the difficult inflationary environment that we currently find ourselves in.