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Is Gold a Good Investment When Inflation is High?

By Jonah Ellingson


When inflation is high, many people turn to gold as a way to protect their investments.

Gold is seen as a hedge against inflation because it retains its value even when the economy is doing poorly.

In this article, we will examine whether or not gold is a good investment when inflation is high.

We will start by defining what high inflation is and then explaining why gold has traditionally been seen as a good investment during periods of high inflation.

Next, we will detail what types of gold can be used as an inflation hedge and explain how people usually invest in gold.

Finally, we will discuss the pros and cons of investing in gold and help you decide if it is right for you!

Let’s get started…

What is High Inflation?

a graph showing inflation going up

High inflation is defined as a sustained increase in the prices of goods and services. In other words, it takes more money to buy the same amount of goods or services.

For example, if you could buy a gallon of milk for $0.50 last year and now it costs $0.75, that is an increase in the price of milk.

In general, when inflation is high, the purchasing power of people decreases. This is because their money is worth less and it takes more money to buy the same goods or services.

Why is Gold a Good Investment During periods of High Inflation?

Gold is seen as a good investment during periods of high inflation because it retains its value.

While the prices of other goods and services may be increasing, the price of gold is relatively stable.

This is because the supply of gold is limited and it is not affected by economic factors like inflation.

For example, if you invest $100 in gold today, you can expect to get about the same amount of gold next year.

However, if you invest $100 in a stock today, you cannot be sure how much it will be worth next year because it is affected by the stock market.

Gold is also a good investment during periods of high inflation because it is not subject to government regulation.

This means that you can buy and sell gold without worrying about the government changing the rules.

Gold vs Stock Market During Inflationary Cycles

The chart below shows the performance of gold and the stock market during inflationary cycles.

As you can see, gold has outperformed the stock market during periods of high inflation.

This is because investors tend to flock to gold when inflation is high as a way to protect their investments.

Inflation PeriodsGold PerformanceStock Market Performance
1970-1974+70%-30%
1980-1981+35%-26%

As you can see from the chart, gold is a good investment during periods of high inflation. It outperforms the stock market and retains its value.

What is the Best Type of Gold to Invest in During periods of High Inflation?

a large stack of gold coins

1. Physical Gold

The best type of gold to invest in during periods of high inflation is physical gold. Physical gold is gold that you can hold in your hand.

This includes coins, bars, and jewelry. The advantage of physical gold is that it is a tangible asset.

This means that it cannot be created or destroyed, unlike paper money.

Physical gold is also easy to trade and transport. You can buy or sell it anywhere in the world without having to worry about government restrictions.

The downside of physical gold is that it can be stolen and it is subject to wear and tear.

You should also keep in mind that the price of gold is not always stable and it can go up or down in value.

2. Paper Gold

Paper gold is a type of investment that is not physical gold.

This includes investments such as ETFs, mutual funds, and mining stocks.

The advantage of paper gold is that it is easier to buy and sell than physical gold.

You can also invest in paper gold without having to worry about storage or security.

The downside of paper gold is that it is subject to market fluctuations. This means that the price of your investment can go up or down depending on the stock market.

Are There Companies That Help with Your Gold Investment?

People usually invest in gold through companies that offer storage and security for your investment.

These companies typically charge a fee for their services.

The fees can vary depending on the size of your investment and the type of service you choose.

For example, some companies may charge a monthly fee while others may charge a percentage of the value of your investment.

When choosing a company to invest in gold, it is important to research the fees and services they offer.

You should also make sure that the company is reputable and has a good track record.

What About Gold IRAs? What Are They and How Do They Work

Another option for investing in Gold is through an IRA.

A Gold IRA is an individual retirement account that allows you to invest in gold. You can use a Gold IRA to hold physical gold, paper gold, or both.

The advantage of a Gold IRA is that it provides tax benefits.

For example, you can deduct your contributions from your taxes.

You can also rollover your existing retirement account into a Gold IRA without having to pay taxes on the money you roll over.

The downside of a Gold IRA is that there are limits on how much money you can contribute and how often you can contribute.

For example, you can only contribute $5000 per year.

Pros and Cons of Investing in Gold in an Inflationary Environment

Now that we have discussed what high inflation is and why gold is a good investment during periods of high inflation, let’s discuss the pros and cons of investing in gold.

Pros:

  • Gold retains its value during periods of high inflation
  • Gold is not subject to government regulation
  • You can invest in gold through companies that offer storage and security for your investment

Cons:

  • The price of gold can fluctuate based on the stock market
  • You have to pay fees to the company that is storing your gold
  • Gold is a physical asset and can be stolen or lost.

Summary

When deciding whether or not to invest in gold during periods of high inflation, you should weigh the pros and cons to see if it is right for you.

If you are looking for a safe investment that will retain its value, then investing in gold may be a good option for you.

However, if you are looking for an investment that can generate income, then investing in gold may not be the best option.

Only you can decide what is best for your situation.

Gold has traditionally been seen as a good investment during periods of high inflation because it retains its value.

However, there are some drawbacks to investing in gold that should be considered before making a decision.

Some of these drawbacks include the fluctuating price of gold and storage fees.

Overall, though, if you are looking for a safe investment that will help you keep up with the cost of living, then investing in gold is a good option.

To determine if it’s the right option for you, you should consult with a certified financial advisor who can examine your situation and needs, and will help you determine the best investment options for you.

Jonah Ellingson

About the author

Jonah has worked as a professional journalist for more than a decade. He carries a B.A. in broadcast journalism and a Masters in Education from the University of Montana. His primary focus is on gold and silver IRAs, as well as all news and trending topics related to gold and silver investing. When he's not busy researching or writing, he can usually be found on a golf course.

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