Gold as an Investment: How It’s a Hedge against Inflation



Gold against other assets

When goods are expensive and above reasonable prices, inflation seems to be sinking in. Equity and debt investments aren’t preferred during these times, as fear settles in among the investors. They’re afraid of buying the asset at a higher price and it underperforming. Historically, gold has performed well during high inflationary periods. It sinks lower during deflationary periods.

The FOMC (Federal Open Market Committee) meeting on Wednesday, July 29, 2015, confirmed that the interest rate hike is pushing inflation concerns. It reasserted the downfall for gold prices. The CPI (consumer price index) can measure inflation and its relation to gold in terms of movements from 2009 to 2015, as shown in the above chart.

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GLD and other miners

According to observations from the past year, the third quarter was good for gold. Whether heavy buying from Asian countries is driving the prices up is the question. The SPDR Gold Trust (GLD) fell close to 0.86% yesterday. It closed at $104.27 per share. The iShares Silver Trust (SLV) rose about 0.64%. Gold mining companies had a tough month due to the downfall of gold and silver.

Major mining companies like Barrick Gold (ABX), Goldcorp (GG), Newmont Mining (NEM), and Silver Wheaton (SLW) fell close to 2.50%, 1.86%, 2.50%, and 0.68%, respectively, on July 30. Together, these stocks account for close to 24.50% of the VanEck Vectors Gold Miners ETF (GDX). Investors may also prefer ETFs like the SPDR Gold Trust (GLD) over gold futures as an inflation hedge to their portfolio. GLD is globally opted for its high volume generation.


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