Inflation is a genuine threat to an economy, and one way to protect your assets is by buying Gold. It’s been widely debated whether or not this is the best option during inflation, but Gold generally will keep its value because you can melt it down.
In recent years, more and more people have begun considering buying physical Gold to store as a wealth-protecting investment. Some of these people have grown cautious of the US dollar, citing that its value is becoming increasingly uncertain because of increasing inflation and declining economic growth.
Gold is seen as a safer investment during high inflation than cash. Gold and other metals have always been considered alternative assets to store value during economic instability. This is true for two reasons:
- Gold’s value goes up alongside inflation, giving you more purchasing power.
- Gold is generally the last currency to be impacted by inflation; therefore, it’s perceived as a haven.
Its long history as a stable store of wealth has created a strong perception among investors that it will always retain its value and even increase in value during times of economic uncertainty.
Why Gold is Considered a Safe Haven Asset During High Inflation
Historically, Gold has always and will always retain its value. Gold has been used as money, trade goods, and jewelry since the beginning of recorded history. Its value has been stable throughout the ages.
There are many reasons why Gold retains its value. Some of the key reasons are as follows:
#1. Gold is a finite resource. There is only so much Gold in the world, and there will never be more of it. It cannot be created out of thin air as fiat currencies can. As the demand for Gold increases, so does the price.
#2. Gold is easy to transport and store; it is malleable, corrosion resistant, and doesn’t oxidize. These properties make it a good investment asset during times of economic instability.
#3. Gold’s price is determined by supply and demand. Governments or central banks do not manipulate it because the Gold market is decentralized.
#4. Since the financial crisis of 2008, central banks worldwide have been buying Gold to diversify their reserves away from the US dollar.
#5. The supply of Gold increases very slowly with Gold mine production. When demand increases exponentially, the price of Gold goes up.
During times of high inflation, investors flock to Gold as a haven asset because it is perceived as an inflation hedge or a hedge against currency depreciation. This is especially true during a financial crisis or economic downturn.
Advantages of Investing in Gold During High Inflation
Gold is seen as an alternative to cash during times of high inflation because it will retain its value through currency depreciation. Here are some of the main reasons why you should buy Gold during high inflation:
#1. As the prices of goods and services go up, the value of Gold also goes up. It will always be worth more, and you’ll be able to buy more with your newly acquired Gold than you would liquid cash.
#2. Gold is a store of wealth. It can be used as an inflation hedge during high inflation and economic uncertainty. Gold is seen as a “safe-haven” investment during economic uncertainty.
#3. Gold is an inflation hedge and helps protect you from the devaluation of your local currency. It can also help protect you from hyperinflation, as seen in Zimbabwe and Venezuela in recent times.
#4. Gold prices go up when the US dollar goes down; therefore, you can also use it to hedge against US dollar devaluation.
#5. Gold is easy to store and transport; it does not require much maintenance.
#6. Gold will always retain its value; there are no bankruptcy options when investing in Gold.
Disadvantages of Investing in Gold During High Inflation
#1. The main disadvantage of investing in Gold during high inflation is the perception that Gold is a “safe-haven” asset. Gold does not always retain its value during times of high inflation. Just because it has been doing so for centuries does not mean it will continue.
#2. Unlike cash, Gold has limited utility during times of high inflation. You can’t buy a cup of coffee with Gold, whereas you can buy with cash.
#3. Gold is not very liquid as an investment and is therefore not an ideal investment for day trading.
#4. Physical Gold can be stolen or confiscated. It can be melted down and re-used in criminal activities, making it a less attractive investment.
#5. Gold can go down and up in value relative to the currency you are storing.
Conclusion
There are many reasons why people should buy Gold during high inflation. It is a good long-term investment; however, Gold may or may not retain its value during high inflation if you buy Gold, research, and ensure that it is a good value for your money.
You should first decide on a price for Gold that you feel comfortable with and ensure that the Gold is authentic. The higher the price that you set, the more you will save. Selecting a high price will also help encourage other people to sell their Gold and reduce the overall supply of Gold in the market. You can also choose to buy Gold electronically instead of physically.