5 reasons to invest in gold amid rising inflation (2024)

While inflation is down from its peak of 9.1% in June 2022, it appears that the inflationary issues we've been facing since the pandemic aren't over just yet. According to the latest inflation report, released on Wednesday, the inflation rate was 3.5% in March, up by about 0.3% compared to the month prior. That means inflation is still well above the Fed's 2% target rate — and the effects are still having a detrimental impact on many people's finances.

But inflationary issues don't just impact the cost of consumer goods and services. Inflation can also negatively affect the value of your investments, which is why many investors are wondering what steps to take right now to protect their hard-earned wealth. And, the good news is that adding certain investments to your portfolio can help shield you from the corrosive effects of inflation.

For example, one asset that has historically performed well during periods of high inflation is gold. There are a few compelling reasons why you should consider adding gold to your investment mix to help safeguard your money right now.

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5 reasons to invest in gold amid rising inflation

Here are five reasons you may want to invest in gold now that inflation is headed back up:

Gold is a proven hedge against inflation

Throughout history, gold has consistently demonstrated its ability to hold its value and even increase in price during times of high inflation. This is because gold is a tangible, physical asset that is not subject to the same erosion in purchasing power as paper currencies.

As the prices of goods and services rise due to inflation, the real value of cash holdings tends to decline. But gold, which cannot be printed or diluted like paper money, retains its intrinsic worth. This makes it an attractive option for investors looking to preserve the purchasing power of their wealth.

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Gold provides portfolio diversification

Diversification is a key principle of sound investing, as it helps to reduce risk and smooth out volatility in your portfolio. And, gold is an asset that has a low correlation to many traditional asset classes, such as stocks and bonds. This means that when other investments are facing a downturn, gold can act as a stabilizing force and help offset losses.

By allocating a portion of your portfolio to gold, you can create a more well-rounded and resilient investment mix that is better equipped to weather various economic conditions, including periods of high inflation. And, by investing in gold now, you can reap these benefits at a time when inflation is ticking back up.

Gold is a safe-haven asset

In times of economic uncertainty and market turbulence, investors often flock to safe-haven assets like gold. This is because gold is widely perceived as a reliable store of value, a characteristic that becomes increasingly valuable when other assets are experiencing volatility or downturns.

And, while we aren't experiencing much market turbulence at the moment, gold can still come in handy. After all, there's a lot of uncertainty about the future of the interest rate environment, and during periods of high inflation like the one we're facing now, gold's status as a safe-haven asset still makes it a sought-after investment. This increased demand can drive up the price of gold, as we've seen in recent weeks, providing investors with the potential for capital appreciation.

Gold is a finite resource

Unlike fiat currencies, which can be endlessly printed by central banks, the supply of gold is limited. This scarcity factor is another reason why gold can hold its value during periods of high inflation. As the demand for gold rises, its price is more likely to increase, as the physical supply cannot be easily expanded to meet the growing demand. This finite nature of gold also makes it a more reliable and tangible asset compared to paper money.

Gold offers physical ownership

Another unique advantage of investing in gold is the ability to take physical possession of the asset. Unlike stocks, bonds or many other financial instruments, gold can be held in the form of gold coins and bars or gold collectibles and jewelry. This physical ownership can provide a sense of security and control for investors. And, by having gold in your possession, you have a tangible asset that is not subject to the same risks as many other investments.

The bottom line

As inflation continues to erode the purchasing power of cash and other traditional assets, investing in gold can be a prudent strategy to protect your wealth. Between its proven track record as a hedge against inflation, the diversification benefits it offers, its safe-haven status and the finite supply, gold can be a smart addition to a well-diversified investment portfolio. But, as with any financial decision you make, be sure to consider all of the factors and make sure investing in gold while inflation is high is the right move for you.