Is Gold A Hedge Against Inflation?

New investors wonder whether gold is the asset to have in times of financial turmoil. Traditionally, gold was considered as a safe haven when inflation was hot. The question is, whether the historical approach is rational in today’s financial markets. Let’s look at how gold acts as a hedge against inflation.

Gold’s historical role

Gold doesn’t act like other assets when inflation hits and markets fall apart. Historical data indicates that from 1973 to 1979, the price of gold surged by 35% annually while inflation rate hit 8.8% averaged over the same time period. Gold evidently became the top inflation hedge during those years.

However, it’s evident that gold has mostly gone sideways over 30 years. The top metal peaked at well over $1,700 in the years after the 2008 financial crisis, then it fell back around $1,100. Or in 2020, gold approached $2,000 amid the pandemic, then dropped below $1,700 after that.

Of course, many stocks went to zero, including the stock of Bear Stearns and Lehman Brothers, some of the largest investment banks in the world at the time. Gold, on the other hand, still has its value today. 

Gold’s performance

March 2022 marked a new interest rate cycle by the Fed. While higher rates are thought to be bad for gold prices, gold has been mostly flat over the past few years.  

Recent data showed that the price of gold hit a six-month high in January 2023, setting up a strong start for the precious metal. Experts suggest that the positive return will extend this year, particularly pressed by market turbulence and geopolitical conditions.

Financial uncertainties have caused concerns not only among investors but also among central banks globally. According to statistics from the World Gold Council (WGC), central banks added a record amount of gold to their reverses in the third quarter of 2022. Additionally, central banks said that they planned to raise gold reserves in the next 12 months.

Who can benefit from gold?

Gold, as a symbol of power and riches, has always been desirable. While gold does not move in lock-step with the inflation rate, over time, it protects value from the ravages of fiat currency. 

Trading strategies, investment plans, and financial objectives will all differ from person to person. In any case, you must still start by approaching the gold market and thinking about if you are willing to hold gold for the long haul. 

Buy it and forget it

Many traders like to speculate in the precious metals markets, and over short amounts of time, gold prices can move fast. If you want to own gold as an inflation hedge, you need to set up an accumulation strategy that makes it painless to hold. 

One should considered factors like fees and price transparency, educational resources, customer support, and the ease of setting up an account and acquiring precious metals, while determining the best gold IRA providers.

With a gold IRA, you can add physical gold to your holdings on a monthly or quarterly basis, and just keep doing it year over year. Don’t bother looking at the price, because you know, when the decades pass, the gold in your gold IRA kept your value safe.