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Inflation is rising again. Here's what that means for gold investments

Gold can be a wise investment at any time, but especially when inflation is high.  /Getty Images

After a full year of falling prices, the latest numbers bring unwelcome news: inflation is back on the rise.

According to the Department of Labor's recent Consumer Price Index Summary, inflation rose in July by an annual rate of 3.2%. Core CPI — which excludes more volatile costs like fuel and gas — rose by 4.7%.

High inflation tends to negatively affect many types of investments. For example, when inflation increases, the dollar's purchasing power drops and so does consumer spending. This leads to lower company profits and, in turn, lower stock prices.

If you want to protect your investment dollars from inflation, one great way to do so is by investing in gold.

Learn more about gold investing with this free information kit.

Inflation is rising again. Here's what that means for gold investments

High inflation is bad news for many, from people with credit card debt to consumers buying groceries. But one group it's good news for is gold investors.

"History has shown that inflation is a good investment when inflation is extremely high and persistent," says Doug Carey, CFA and president and owner of WealthTrace.

When inflation is on the rise, more investors turn to gold for the reasons we get into below. As a result, prices go up, making gold investments more valuable for those who hold them. For example, when inflation rose into the double digits in the 1970s, gold prices rose too — from $35 a share to a whopping $850 per share.

Why high inflation equals high gold prices

Why exactly do gold prices go up when inflation is high? Because of gold's many benefits as an investment:

Store of value

There is a limited supply of gold in the world. We can increase gold mining, but we can't create more of it. As a result, gold is considered a store of value, especially when the dollar's purchasing power goes down.

"There is a finite amount of gold, and… if governments undertake large currency depreciation operations (i.e., print more money), then gold should perform well," says Chris Berkel, investment adviser and president of AXIS Financial.

Stability amidst economic turbulence

Unlike some asset classes, gold investments don't depend on a strong economy. Gold isn't tied to any government or currency, which enables it to retain its value throughout periods of economic uncertainty. This stability is one of the reasons central banks hold gold in their reserves.

Diversification benefits

A successful investment portfolio contains a mix of assets. High-risk, high-reward assets like stocks enable you to grow your returns faster, while low-risk, moderate-reward assets provide protection against losses. Gold is one such asset.

"Gold can be a good diversification tool," says Carey. "It has a low correlation with other asset classes, which helps reduce portfolio risk."

In other words, when other assets are performing poorly, gold tends to perform well. This helps offset any loss of value in your portfolio when other assets falter.


Gold has many uses in everything from investing to making products like jewelry and electronics. As a result, gold is always in demand, which means gold investments are easy to sell and convert into cash without much hassle. In times of high inflation when your purchasing power is down, this can come in handy.

The bottom line

Gold can be a wise investment at any time, but especially when inflation is high. So, with inflation rising again, now is a great time to add gold to your portfolio. Experts recommend keeping 5% to 10% of your investment dollars into gold products. You can get started by requesting a free gold investors kit here.

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