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3 compelling reasons to invest in gold even as inflation cools

Gold is a compelling investment option, even as inflation cools.  Jesus Ayala Photography / Getty Images

Inflation is cooling, and that's exciting news for those who have been struggling to keep up with the growing cost of living. Today's inflation report showed that prices grew 3.3% year over year in May. That's down from April's 3.4% inflation rate, which was down from March's 3.5% rate. But, what does that mean for gold investors?

Many see gold as a valuable hedge against inflation. That's because the price of gold typically heads up when consumer prices are on the rise. But, as the inflation rate falls does it still make sense to invest in gold? For a variety of reasons, it may still be. Below, we'll break down three reasons why it's still worth adding gold to your portfolio

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3 compelling reasons to invest in gold even as inflation cools

Though inflation is cooling, gold still has a place in a well-balanced investment portfolio. Here's why you should add it to yours (if you haven't already): 

The May inflation cooling wasn't substantial

While April and May saw slowing inflation, the inflation rate only fell by 0.1% in both months. And, the 3.3% inflation rate seen in May isn't necessarily good news for the economy. 

"Although inflation may be 'cooling,' there's nothing cool about the fact that the cost of living is still up," explains Vijay Marolia, money manager and managing partner at the wealth management firm, Regal Point Capital. "What people keep missing is that, although the inflation rate is decreasing, prices of goods and services continue to increase, squeezing consumers and forcing them to make hard, and sometimes dangerous decisions."

Keep in mind that the Federal Reserve would like to see the United States inflation rate closer to 2%. And, if the current rate falls by just 0.1% each month, it will take 13 months for inflation to fall to a comfortable level. 

So, even though inflation is beginning to cool, it's still quite a bit higher than it should be. And, prices growing too fast could lead to further gold price growth

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Inflation is cyclical

If you only invest in gold as an inflation hedge (it has much more to offer by the way), it still may be worth adding some to your portfolio - even with inflation cooling. That's because inflation is cyclical. 

Cycles of high inflation are usually followed by cycles of low inflation and vice versa. Even if inflation cools to the Fed's 2% goal quickly, it will undoubtedly increase at some point in the future. And, if you maintain a reasonable amount of gold in your portfolio (up to 10% of your portfolio assets) and inflation ticks up ahead, you'll be better protected. 

Gold isn't just an inflation hedge

Gold is an effective way to hedge against inflation, but that's not its only value in an investment portfolio. As a safe haven investment, gold can protect your portfolio from political, geopolitical and other market risks. 

That's a valuable proposition right now. This is an election year. And, presidential elections mean that there may be regulatory changes ahead that impact corporations and markets alike. And, the geopolitical stage is far from perfect at the moment. Not to mention, other market risks may become realities at any time. 

So, even if inflation was ideal now, there would be compelling reasons to invest in gold as a safe haven and diversification tool.

The bottom line

Inflation is cooling. And, that may be concerning news for gold investors. But, it shouldn't be. The reality is that inflation hasn't cooled much and it's a cyclical phenomenon. So, the limited cooling we've seen thus far may only have a minimal impact on gold's price - if it has one at all. Moreover, it's wise to maintain a healthy allocation to gold in your portfolio to protect yourself against future inflationary conditions as well as risks that political and geopolitical events currently pose. Compare your gold investing options now to protect your portfolio

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