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Is it Wise to Buy Gold During Inflation?

Is It Wise to Buy Gold During Times of Rising Inflation?

February 10, 20224132 view(s)

For roughly 5,000 years, gold has been a pillar of the financial industry. Gold has witnessed empires rise and fall, and in modern times, has seen fluctuations in the market economy during periods of inflation and deflation. 


During that time, gold has maintained its track record as a reliable store of value to preserve wealth while securing the financial future of emperors and common-folks alike. So, does gold's resilient reputation hold up under scrutiny as a hedge against inflation? 


Let's analyze what inflation looks like, how gold has traditionally performed during inflation, and if it is wise to make gold investments during inflation as strategic preservation of wealth. 

What Defines Inflation?

During inflation, the purchasing power of a currency declines over time. A rise in the general price level occurs, which means the unit of currency effectively buys less than it did in prior periods. A decrease in the currency's value means less purchasing power for consumers when buying goods and services. 


As a result, the general cost of living for the common public goes up, leading to less participation in the market, which ultimately leads to a deceleration in economic growth. Most economists agree that sustained inflation occurs when the growth of a nation's money supply outpaces its economic growth. 

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Is it Wise to Invest in Gold During a Period of Inflation?

Gold is seen by many investors as a way to hedge against inflation, which means that over the long term, gold has been able to deliver higher-than-inflation returns. This matters because investors will want to build diversified portfolios with assets that deliver inflation-beating returns to meet their goals of financial freedom and independence, like saving up for retirement.

So how does it work? As the cost of living becomes more expensive and the dollar loses its value, the price of gold should also increase in line with the rising inflation.

By converting their cash holdings into gold, investors are able to protect the value of their assets by using gold to hedge against inflation. Gold is a limited resource that is not dependent on any centralized bank, adding to its overall store of value.

In the short- to medium-term, investing in gold bullion to hedge against inflation may not seem as effective compared to other inflation-beating assets. An investment that effectively hedges against inflation should rise in tandem with rapid growth in consumer prices. Some findings have hinted that investing in gold as an inflation-beating asset has produced mixed results during some of the highest inflationary periods in the U.S. However, there's a reason we say "old is gold:" gold will always be around. Although gold's nominal value is volatile, gold's overall value has steadily and significantly increased over the past 100 years as a long-term store of wealth. 

So, while gold bullion may not outpace inflation, investment in bullion is only the beginning of precious metals investing. There are other ways to diversify within precious metals portfolio with proof 70 coins. You can view the performance of the Gold American Eagle Proof 70 to understand the additional option of wealth preservation they provide.

The recent period of inflation has continued to increase in the U.S. at a rate of 7% from the beginning of 2021 to the end of the year. The year 2020 saw returns from gold spike 24%, but with the chain reaction of events stemming from the COVID pandemic, returns have slowed as the economy absorbs the shock of so much volatility.

Historical Gold Prices 100 Year Chart
Source - Macro Trends: Historical Gold Prices 100 Year Chart

Who Should Consider Buying Gold During Inflation?

The long-term investment value of gold is empirically undeniable. We've either seen returns on gold consistently rise over the past 100 years or fiercely bounce back from periods of market turmoil. Savvy investors stack their portfolios with a variety of inflation-beating assets. Those wanting a reliable investment should highly consider investing in gold as a long-term investment. It is recommended that investors allocate 10 to 15% of their portfolio to gold investments.

Why Trust the U.S. Gold Bureau to Help You Make Sound Investment Decisions?

For nearly 20 years, the U.S. Gold Bureau has provided investors of all levels with educational tools and resources to make sound investment decisions. Our customer-centric approach emphasizes personal attention and respect for each client. Each of our Precious Metals Specialists undergoes extensive training and is well equipped to assist you at all stages of the gold-buying process. 


In 2017, our parent company (Lone Star Tangible Assets) was selected by the State of Texas to build and operate the Texas Bullion Depository, the only state-administered precious metals storage facility in the country. We aim to bring trust and integrity to all aspects of the precious metals acquisition process. We are directly compliant with all gold-industry standard rules and regulations of the Federal Trade Commission, as well as the top associations and governing bodies of the precious metals industry.


Call us today (800) 775-3504 to speak to one of our precious metal experts to start investing in greater financial freedom with gold.  

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