Watch CBS News

Can gold bars and coins protect against inflation?

Unlike other assets, gold tends to rise in value when inflation is high. Getty Images/iStockphoto

For investors, protecting their portfolios is equally as important as growing their balances. And when inflation is high — as it's been for the past couple of years — this is especially important. Inflation can erode the value of your investment dollars, chipping away at your portfolio's value. Fortunately, there are ways you can safeguard your portfolio from the damaging effects of inflation.

One asset investors often turn to for this is gold. Gold has long been a popular choice for those looking for a stable, safe and reliable store of value. And one of the easiest ways to invest in gold is by buying gold bars and coins.

Learn more about gold investing with this free information kit.

Can gold bars and coins protect against inflation?

Here's how gold bars and coins can help you guard against inflation.

Gold prices often rise when the dollar is weak

One of the reasons gold is a smart addition to any portfolio is that it's traditionally held its value over time, even during market downturns and economic uncertainty. And when inflation is high, gold prices actually tend to rise.

For example, from 1970 to 1980, the average federal funds rate rose from 8.98% to 13.82%, according to the Federal Reserve Bank of St. Louis. During that same period, gold prices skyrocketed from $35 per share to $850 per share, per NASDAQ data. Those who owned gold during this period were able to shield their wealth from the impact of inflation and potentially increase their portfolio's value.

Gold's supply is finite

Gold prices tend to rise during inflationary periods because of the precious metal's limited supply. You can't produce gold rapidly in large quantities the way you can paper currency, and there is only so much of it to be mined in the world.

As a result, when the demand for gold increases — as it does when investors turn it to guard against inflation — its price rises, too. This can protect your purchasing power when the dollar is weak due to inflation.

Gold is globally recognized

Gold is a globally accepted currency and asset. Its value isn't directly tied to one economy or market the way fiat currency is, allowing it to weather economic turmoil and geopolitical uncertainty better than other assets.

In addition, because physical gold always has a global market, it's relatively easy to sell at any time to generate additional cash — something you may need to do when your money's purchasing power is down.

Gold diversifies your portfolio

Diversification is a crucial aspect of investing. By spreading your money across different assets, you reduce your overall risk with conservative assets while also allowing room for growth potential through more volatile assets.

Gold typically doesn't move the same way as other assets, such as stocks or bonds. When these assets are down, gold often goes up, and vice versa. So, by purchasing gold bars and coins, you can protect your portfolio from losses when other assets falter due to inflation.

The bottom line

Gold bars and coins can serve as a reliable hedge against inflation. The precious metal's historical value, limited supply, global recognition and diversification abilities make it an attractive asset for investors seeking protection against inflation.

That said, it's important to remember that gold should be only one part of a broader investment strategy that takes into account other factors, such as your risk tolerance and overall investment goals. A financial advisor can help you create a plan that best suits your budget and needs. By approaching your investments in a thoughtful and strategic way, you can help ensure your portfolio remains stable and secure in the face of inflation and other economic troubles.

View CBS News In
CBS News App Open
Chrome Safari Continue
Be the first to know
Get browser notifications for breaking news, live events, and exclusive reporting.