Inflation just rose again: Why you should invest in gold right now

Inflation reared its head again in January, rising by 3% on an annual basis, up from a rate of 2.9% in December and 2.7% the month prior, according to new data released this week. The steady uptick over the last several months is causing financial concerns for consumers and investors alike, with rising prices on essential goods like groceries and gas weakening purchasing power and eroding savings. 

This rise in inflation in January surpassed analysts' forecasts and pushed the inflation rate even further from the Federal Reserve's 2% goal. Given last month's unexpected uptick, there is even more uncertainty regarding how long these pressures will persist — and many investors are now searching for ways to protect their wealth against the declining value of traditional currency.

One time-tested way to do that is to add gold to the mix. Gold has served as a store of value throughout history, helping to preserve purchasing power in times of economic turmoil. And, given this new spike in inflation, there are even more reasons why now may be a smart time to allocate a portion of your portfolio to gold. 

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Why you should invest in gold with inflation rising again

There are a few reasons you may want to add this precious metal to your portfolio right now, including:

Gold acts as an inflation hedge

One of the primary reasons to invest in gold during inflationary periods is its reputation as a hedge against rising prices. Historically, gold has maintained its purchasing power even when inflation has surged. That matters because when inflation rises, central banks often resort to printing more money, further devaluing the currency. Gold's limited supply, on the other hand, ensures that it retains its worth over time, making it a tangible asset that investors trust to preserve their wealth.

Gold prices also tend to rise when inflation accelerates. Because investors flock to gold during periods of economic instability, increasing demand tends to drive up its value. This trend makes gold an attractive option for those seeking a safeguard against inflationary pressures.

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Gold can diversify your portfolio while reducing risk

Traditional investments like stocks and bonds are often negatively affected by inflation. When inflation rises, interest rates tend to increase, which can lead to stock market volatility and declining bond values. But by allocating a portion of your portfolio to gold, you create a buffer against these losses.

Gold has a low correlation with other asset classes, meaning it does not move in tandem with stocks or bonds. So, during economic downturns and inflationary periods, gold often performs well while other investments struggle. This characteristic makes gold an essential asset for maintaining a balanced and resilient investment strategy as inflation rises.

Current economic conditions favor gold investing

Beyond general inflation concerns, specific economic conditions are occurring right now that make gold an especially attractive investment. With geopolitical tensions looming and changes to economic policies being introduced by the new U.S. presidential administration, uncertainty in financial markets has increased. These factors can contribute to the weakening of major currencies, further supporting gold as a safe-haven investment.

Central banks around the world have also continued to add gold to their reserves. This trend indicates a lack of confidence in fiat currencies and reinforces the idea that gold remains a critical asset in preserving financial stability. If institutional investors and governments are turning to gold, individual investors may want to follow suit to protect their wealth from economic instability.

The bottom line

Inflation is on the rise again, and its impact on financial markets cannot be ignored. Rising prices can erode purchasing power, destabilize investments and increase economic uncertainty, but gold remains one of the most reliable assets for preserving wealth and safeguarding against inflation. By investing in gold now, you can hedge against inflation, diversify your portfolio and take advantage of other economic conditions that could help your precious metal investment pay off over the long term.