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Inflation remains persistent. The U.S. inflation report released this week showed that prices were 3.2% higher in February than they were one year earlier. That’s an increase from January’s 3.1% annual inflation rate. Prices in February were up month over month too, climbing 0.4%.
As stubborn inflation consistently devalues the dollar, it’s important to hedge your savings bets. Without any inflation protection, your hard-earned dollars could be losing buying power.
Investing in gold is one way you could protect your money. But, if you’ve never invested in the precious metal in the past, you may be at a loss for where to start. So, what gold investment moves should you make with inflation rising? That’s what we’ll break down below.
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3 gold investing moves to make with inflation rising
With the prices of goods and services rising and the value of the dollar moving in the other direction, here are three gold investment moves you should make now.
Understand the types available
Investing in the physical commodity by purchasing gold coins and bars is an attractive option, but it’s not the only way you can invest in the precious metal. You can also invest in gold ETFs and mutual funds and more.
These funds typically combine investments from a large number of investors and use the money they receive to invest in gold or a diversified portfolio of gold mining companies. Each of the fund’s shareholders shares in the gains, or losses, generated by the underlying assets proportional to the number of shares they own.
It’s also worth considering a gold individual retirement account (gold IRA). These accounts come with the tax benefits associated with traditional IRAs but give you the option to hold precious metals as retirement investments. On the other hand, as tax-advantaged retirement investments, you could be penalized if you tap into a gold IRA before you’re 59 and a half years old.
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Know the limitations
Although it may be wise to invest in gold, it’s probably not a good idea to invest everything you have into the precious metal. Sure, it’s an effective hedge against inflation, but there are other assets that typically produce larger gains. So, most experts suggest that you limit your portfolio’s gold allocation to 10% or less of your overall assets.
Moreover, while the value of gold may grow over time, the investment is limited in that it won’t produce the same reliable income that other investments can. After all, gold doesn’t produce earnings like publicly traded companies do and it doesn’t offer interest-based returns like bonds and treasury bills. Instead, to make money off of gold, you’ll generally need to be invested long-term.
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Although inflation has cooled since reaching a 9.1% rate in mid-2022, it is still a cause for concern. Today’s 3.2% inflation rate is well ahead of the Federal Reserve’s 2% target, suggesting that the value of the dollar is falling at a faster rate than it should be.
That doesn’t mean you have to lose value to inflation. But it does mean that you should start hedging your bets if you haven’t already. Since gold is an effective way to hedge against the effects inflation can have on savings, it’s probably a good idea to start investing in the precious metal now.
The bottom line
Though gold does have its limitations as an investment, it is an effective way to hedge against inflation. So, as inflation continues to tick up, it’s wise to get to know more about your gold investment options and start adding the precious metal to your portfolio as soon as possible.
