Last Updated on August 4, 2023 by Tabraiz
Only a short time ago, the prospect of reaching hyperinflation was met with scoffs and cocksure incredulity by many prominent financial gurus. Now, with inflation rising at the fastest rate in 40 years and prices skyrocketing, hyperinflation doesn’t seem like such a distant impossibility. Cautious investors are already searching for reliable hedges against this looming threat. Some have turned to gold due to its long-standing reputation as a strong hedge against inflation.
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Is gold really an inflation hedge?
Let’s set things straight: despite what you may have heard, gold is not always a great hedge against inflation. Historically, gold has not fared well during periods of low or steady inflation. However, gold seems to excel during periods of significant and fast-rising inflation, which is what we’ve observed throughout the first half of 2022.
Why do investors choose gold?
Gold has been a trusted store of value for thousands of years, and many investors today still view it as such. Here are three of the most popular benefits of gold for investors:
Some investors value the tangibility of an investment. Can you touch it, use it, or store it in your home safe? Physical investments, and the quality of tangibility, are sought after for many reasons. One of the most common is that these types of investments are not dependent upon any external systems or technology. If an electronic market crashes, if you lose your passwords, if someone hacks into your online accounts, your digital assets are at risk. With gold and other tangible investments, you never have to worry about losing access to your assets. Gold is an old-school, analog-style investment with value that you can hold in your hand.
Permanence and Durability
Though its value may fluctuate, gold will never deteriorate, degrade, rust, or tarnish. Acid-based solutions such as Aqua Regia (a 3:1 mix of hydrochloric and nitric acid) can dissolve gold into economically unrecoverable gold particles, but even still, it is not completely destroyed. Outside of cooking it in a nuclear reactor, it seems impossible to ever truly destroy gold. It’s one of the least reactive metals known to man. There is an old saying from the days of alchemy: “It is harder to destroy gold than to make it.” Needless to say, near-indestructibility is a great quality to have in a long-term investment.
Though investing in gold may not make you rich in the short term, it is one of the most commonly used assets for preserving wealth over generations for a reason. Not only is it virtually impossible to destroy, but it is also very resilient as a store of value, too. In periods of depression, gold usually recovers quicker than other assets, such as stocks. Gold has the ability to absorb market shocks in bonds, oil, and equities. In addition, gold lacks the credit risks or default risks of other types of investments.
Looking Towards the Future: Old Risks and New Potential
Gold has been made illegal to own and even seized by several governments in the past, especially in times of economic uncertainty when gold threatened the country’s primary form of currency. The US dollar has served as the world’s reserve currency since World War II, and despite the US’s staggering debt, the dollar remains strong – but a widespread loss of confidence is the death knell of any currency. Though it is unlikely to happen in the near future, it’s entirely possible that gold may be prohibited and seized at some point in the future if the stability of the US’s (and the world’s reserve) currency is threatened.
In the meantime, things are looking up for the gold market. With the economic situation in Russia growing more precarious by the day, there is talk of pegging the ruble to gold. If this is the case, investors have good reason to feel bullish on gold.
Can Gold Hedge Against Hyperinflation?
The short answer is maybe. Gold has performed well during periods of rapid or excessive inflation, which bodes well for its ability to stand up to the increased pressure of hyperinflation. While there are no guarantees, the unique benefits of gold and other precious metal investments are enough to convince many investors to take the leap.
Interested in Investing in Gold?
There are many ways to invest in gold in 2022: a few of the most common include buying stocks in a mining company, investing in ETFs that track the price of gold, and buying physical bullion, such as coins and bars. Another is a Gold IRA,
Learn more about IRAs (including Silver IRAs, and Bitcoin IRAs) from Regal Assets. Find out if a Gold IRA is right for your investment strategy on the official Regal Assets website.
Click here for your FREE investment kit. For more info call Regal Assets at 1-877-962-1133.
Written By: J.B. Maverick – An active investor who has written hundreds of articles, blogs, and eBooks on personal finance and investing for dozens of different investor information websites, including Investopedia.com, and acted as an advisor and editor for the Financial Educators Council.
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