How Precious Metals Protect Against Inflation

How Precious Metals Protect Against Inflation


Time and time again, people turn to precious metal investments when nations face financial crises. Gold and silver have become the tried and true way of protecting your money because of their consistency over centuries. It’s certain that even in the age of stocks and cryptocurrency, precious metals aren’t going anywhere.

For that reason, gold and silver have often been referred to as the best hedges against inflation. When you hear investors use words like inflation hedges and safe havens, it’s easy to feel overwhelmed and confused. However, you don’t have to let the idea of investing in gold as a hedge intimidate you.

Instead, we recommend that you keep reading! We’ll tell you everything you need to know about:

  • What Inflation Really Is
  • How You Can Combat It
  • The Best Investments to Hedge Inflation
  • How Inflation Can Impact Gold and Silver Prices
  • Comparing Silver and Gold as Hedges
  • How to Buy Gold During Inflation

What is Inflation?

To put it simply, inflation occurs when a given currency’s purchasing power declines over time. That means that the cost of goods and services is going up, so a unit of currency can’t buy as much as it used to. There’s much more to it than that, however.

The prices of these goods and services will all vary. Some may increase drastically, while others might be hardly noticeable. For that reason, the world measures inflation by looking at the percentage change indicated in a country’s general price index. This change is known as an economy’s inflation rate.

Causes of Inflation:

  • Growing Economy: As unemployment drops or wages rise, there’s more money for consumers to spend. More money competing for the same products drives the price of goods and services upwards.
  • Money Supply Expansion: When the Federal Reserve prints more money than the economy’s growth rate can handle, demand and prices increase.
  • National Debt Management: There are two ways to handle a soaring national debt: tax hikes and money printing. Though it happens differently, both lead to the same result, which is rising inflation rates.
  • Government Regulations: Tariffs and laws can make goods more expensive to produce or import, so companies often pass on the higher expense to their consumers by increasing their prices.

How to Combat Inflation as a Consumer

When you’re a consumer dealing with inflation, it’s easy to feel helpless. After all, there’s not much you can do to affect regulations, wages, and jobs. That doesn’t mean you have to succumb to the financial damage that inflation can cause. There are several ways to protect yourself from the effects of inflation. We recommend the following:

  • Hedge Against Inflation with Stable Investments
  • Invest in Real Estate that Will Yield Positive Monthly Cash Flow
  • Start a Business as an Asset that Increases or Decreases with Inflation
  • Choose Savings and Checking Accounts with High-Interest Rates
  • Learn How to Invest in Other Stronger Currencies

Best Investments During Hyperinflation

How do you hedge against inflation and its negative impacts? By making investments designed to protect yourself from the decreased purchasing power of your country’s currency. While you can invest in various things, from short-term bonds and stocks to cryptocurrency and commodities, precious metals still stand to be one of the best safe havens.

Why do so many people buy gold during inflation?

Unlike paper money, gold derives its value from its scarcity and its uses in the industrial and electronic sectors. The value of paper money is often determined by global factors, the Federal Reserve, central banks, and more. As a result, gold is much more stable. While the dollar’s value may rise and fall, the value of gold will remain steady. The same can be said for silver. That is why so many investors use precious metals to store their wealth.

How Does Inflation Affect Gold Prices?

Just because it is a safe haven doesn’t mean that inflation doesn’t affect gold prices. In fact, it means quite the opposite. A gold vs. inflation chart would show a direct correlation with the price of gold rising and inflation because gold is dollar-denominated. That’s precisely why it is a great hedge.

Look at it this way.

Suppose you have $2,000 in your bank account. It would still only buy your $2,000 worth of goods, so as the cost of goods rises, you would be able to buy less than you would’ve before inflation. If you had instead taken that $2,000 and invested it in gold, the price of gold would’ve risen with inflation.

To give you an idea of what that means, we’ll say that the inflation-adjusted gold price is $2,100. You could then sell your gold and end up with $2,100 to buy goods and services. Therefore, your buying power would essentially stay the same since the value of your gold rose with the increase in the cost of living.

Comparing Silver vs. Gold as Hedges Against Inflation

Silver works the same way as gold in terms of inflation hedging. Some may debate that one is better than the other, but the differences are not very noticeable to the average investor. Just like gold increases in value with inflation, the cost of silver also rises so that it can be a tremendous hard asset and store of value.

Learn More About How to Hedge Against Inflation with Precious Metals

Are you interested in finding out more about how you can use gold and silver to hedge against inflation? Would you like to invest in precious metals to store the value of your hard-earned money? You’ve come to the right place if you answered yes to either question.

At International Precious Metals, we have plenty of experience helping customers expand their investment portfolios. You can work with our knowledgeable representatives to get all of the answers to your questions. We’ll also guide you through choosing which precious metals to invest in. You can contact us by calling our toll-free number, or you can use our convenient live chat function.