How to Hedge Against Inflation by Investing in Gold

How to Hedge Against Inflation by Investing in Gold


According to the U.S. Labor Department, the United States inflation rate reached 9% this year, and it has maintained a rate higher than 8% for the last several months. These rates are some of the highest that the country has seen in 40 years.

As a result, the U.S. Dollar has less purchasing power than in years previous, and families are spending more money on everyday purchases. This also is why many people are hesitant to invest. However, investments can drastically protect your hard-earned money from the decline of purchasing power, especially when you invest in the right things.

What does that mean?

An inflation hedge is an asset typically expected to maintain or even increase in value when inflation occurs. More often than not, these investments are physical assets like precious metals. In fact, a gold inflation hedge is one of the best choices investors can make. We encourage you to keep reading this guide to learn more about why that is the case.

Gold Price vs. Inflation

To understand more about how gold can beat inflation, you must understand their relation. Does gold go up with inflation? Does it remain the same? You can observe this relationship by comparing gold prices to the Consumer Price Index (CPI). This index is used to measure inflation by looking at the change in prices over a specific period of time.

When you look at the data, you’ll see that increases in gold prices correlate to increases in the CPI. However, this is more obvious when facing times of remarkably high inflation rates like we are now. The relationship is less evident in more stable economic periods where changes only occur in moderate increments.

How Well Does Gold Hedge Against Inflation?

Since there’s a direct correlation, gold is a great hedge against inflation. In fact, people have been using gold to protect their money against the impact of inflation for decades. If you choose to keep your cash instead of gold, you will likely lose money, and you certainly won’t make any.

To understand that, let’s break down this example:

You have $1000 of leftover income. You can invest it, leave it in your bank account, or spend it on $1,000 worth of goods and services. If you leave it in your bank account, its spending power will decrease with inflation, and you won’t be able to buy as much as you would’ve previously.

If you had invested that money in gold, the value of gold would’ve gone up with inflation. Therefore, you would have the same spending power if you were to sell the bars for cash.

Don’t panic if you didn’t already invest. You can still buy gold during inflation to help protect your assets. You just might not get as much value as you would’ve before inflation took off.

Other Times You Should Invest in Gold

Inflation isn’t the only reason that you should invest in gold. Many people find that it is beneficial because it offers:

  • Stability
  • Security
  • Diversity

More Precious Metal Inflation Hedges

If hedging with gold is effective, you’re probably wondering, “is silver a good hedge against inflation?” The answer is yes! Just like gold, silver is a great way to put your money into a resilient asset. Silver has less value than gold but can still protect your purchasing power.

Is platinum a good hedge against inflation? While platinum doesn’t have a long, the same proven track record as gold and silver, it is still a precious metal with great potential to hedge against inflation. As with most physical assets, it can be a perfect way to protect your purchasing power, especially as its prices have risen recently. There just isn’t as much data to support the idea of hedging if you are looking for a low-risk investment. This could, however, be an excellent option for those willing to take a risk for the potential of more reward.

How to Buy Gold for Your Investment Portfolio

One of the other benefits of gold is that it is easy to buy. There are several ways you can add the precious metal to your investment portfolio. It can be purchased online or through your favorite investment firm. While some methods are more popular than others, you should choose the option that is most comfortable for you. The following are just a few ways that you can buy gold:

  • Physical Gold: Some people like the security of holding the physical gold in their hands. However, there is also the added stress of keeping it safe. You may choose to lock it up at home, use a safe deposit box, or secure it in a vault.
  • ETFs: If you want to invest in gold without worrying about how to keep the bars or bullion safe, this is a great alternative. A gold-backed ETF gives you the best of both worlds. However, you’ll have to find a trusted broker, and you’ll need to pay additional costs and fees.
  • Gold Futures: This investment option is similar to ETFs because it allows you to invest without ever holding the physical gold in your hand. However, it still lets you benefit from the rise or fall of gold prices. You may also find some contracts that allow you to receive the physical gold if that is important to you.

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Find out More About How Gold Can Hedge Against Inflation

Do you want to learn more about how gold can protect your assets from the effects of inflation? If so, you should speak with a helpful representative of International Precious Metals. IPM has years of experience with buying and selling gold, so you can trust the experts to guide you through the process.

You can get started by calling our 24/7 toll-free line. We are happy to provide you with more information over the phone, or we can help you set up your precious metal portfolio. You can also chat online with a friendly representative if you have any questions before buying gold bars or bullion.

If you’re interested in reading more about rare US coins, check out some of our other great posts including, ‘The Most Valuable Coins In US History’, ‘Guide To Coin Grading' and ‘Guide To Buying Gold’.