March 16, 2023


What Investors Should Know About Gold and Inflation


Investing in gold is often considered to be the ultimate long-term hedge against inflation, but its performance short-term has a mixed track record. 

In this article, we'll delve into the historical relationship between gold and inflation, provide guidance on analyzing gold investments for inflation protection, and suggest some top gold stocks to consider.

Gold investing 101

Gold has been used as a currency for thousands of years, and it remains a popular investment today. Investors can purchase gold in a variety of forms, including physical gold bars and coins, exchange-traded funds (ETFs), and mining stocks.

Understanding inflation & its impact on gold

Inflation is the increase of prices for goods and services over time. When inflation is high, currency's purchasing power decreases and investments may lose value. This is why many investors seek out assets that are known to protect against inflation.

Historically, gold has been a popular investment during times of high inflation. The price of gold often increases during periods of inflation, as investors seek out assets that can hold their value. For example, during the 1970s, the price of gold skyrocketed as inflation rose sharply.

The relationship between gold & inflation in 2023

In 2022, gold prices experienced a decline despite record-high inflation. This is because as interest rates rise, investors are tempted to sell their gold, which doesn't pay interest, in exchange for assets that do, such as stocks, bonds, and property.

Some analysts believe that gold is useful in protecting against inflation before it happens, but once inflation has already occurred, it's too late to hedge against it, and gold prices may suffer as a result. Additionally, a strong dollar can dampen the excitement surrounding the price of gold because gold is priced in dollars.

In recent months, however, gold has been experiencing a resurgence with a relatively steady rise from November 2022 to March 2023.

How to analyze gold investments for inflation protection

When analyzing gold investments for inflation protection, investors should consider factors such as the current rate of inflation, the strength of the economy, and the potential risks and benefits of the investment.

Tips for investing in gold for inflation protection

  • Do your research
  • Diversify your portfolio
  • Be prepared for market volatility
  • Consider the costs associated with investing in gold, such as storage fees for physical gold

The benefits of gold as a diversification tool for investors prove it to be a worthwhile investment. Moreover, there's a growing demand for gold from investors, central banks, tech companies, and jewellers, according to the World Gold Council.

Top options & gold stocks to consider for inflation protection

Investors looking to buy gold have a range of options depending on their individual goals:

  • Physical gold bullion, which can be stored in a safe or bank
  • Gold exchange-traded funds (ETFs)
  • Gold futures contracts
  • Shares of individual gold-related stocks like Barrick Gold Corp. (GOLD), Franco-Nevada Corp. (FNV), and Newmont Corp. (NEM) or a gold-related ETF 

To protect against inflation, investors should consider investing in assets that either maintain or appreciate in value over time. While gold has historically demonstrated its value as a long-term investment, there are also other options available such as utility stocks, healthcare, and consumer staples — otherwise known as defensive sectors, areas of the stock market that tend to perform well during economic downturns or times of uncertainty, such as recessions, market corrections, or geopolitical crises.

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