Buying gold in times of inflation: is it profitable?

We live in convulsive moments at an international level that are reflected in the financial markets. The crisis in Ukraine is the last real shock in the last two years, after the coronavirus crisis, which does not allow us to raise our heads.

When the light finally seemed to be seen at the end of that long pandemic tunnel, a new nervousness fueled by the invasion of Ukraine by Russia and the war reached the whole world.

The crises have been intertwined with each other with important economic consequences goldco review. Among them a period of high inflation that has not been seen for decades in developed countries.

This continued rise in price growth rates, soaring well above the 2% environment, which is the goal of central banks, has clear implications for the lives of consumers and investors, which we must begin to implement actions that protect us from an avoidable loss of purchasing power.

In both the US and many European countries, the rate of price growth has already reached double figures, at peaks not seen since the 1980s.

How have we got here and, above all, how do we face this situation of inflation from our personal finances? We must all be aware that, in this environment, a euro earned in June is no longer earned in July.

Each month, the euros that are kept in liquidity, or in bank deposits that do not pay any return, will have less and less value.

Therefore, its owners will have less and less money, simply due to the passage of time and the relentless effect of inflation.

What can we do in the face of this reality? How to protect your SME against inflation? There are numerous assets on the market to try to beat inflation and, although it is not an easy task in these turbulent times full of uncertainty, all possibilities must be examined.

In the range of options is gold: Is gold profitable in this context? Can gold, the classic safe-haven asset, beat inflation?


Is it advisable to invest in gold against inflation?

Historically, gold has performed well against inflation. According to the World Gold Council, gold has registered a return of 15% on average in periods of inflation greater than 3%.

In the same way, and according to the same organization, gold has also performed well against more moderate inflation rates: it has registered an average return of 6% in periods of inflation below 3%.

Therefore, based on historical data, we could say that, indeed, gold is a good asset to beat inflation. But, is it the only asset? Is it the best in periods of inflation?

The answer to these questions already depends on many more factors than a simple historical analysis. From a theoretical point of view, it should be noted that in times of uncertainty it is a refuge asset par excellence.

From a practical point of view, if we compare the twenties of this 21st century with the last decades of the 20th century, the financial sector has developed spectacularly. This has allowed the creation of numerous alternatives to gold.

Bearing this in mind, first of all, it should be noted that gold, even in this century, is still of crucial economic importance as an asset of stable value. It works as a guarantor like few others in times of high uncertainty like this.

In addition, gold has several clear advantages. One is its high liquidity, that is, the ease of converting it into hard cash. Also its stability, as an asset that maintains its value; and of course it is a great option in a good diversified portfolio.

In this sense, in periods as volatile as the one we are experiencing, investors opt for securities such as gold, which inevitably leads to its revaluation and affects this virtuous circle.


Do I buy gold to beat inflation?

Therefore, we can say that, in effect, gold is an asset to be taken into account in periods of high inflation. As a safe haven with a high historical valuation in periods of rising prices, it is worth including in an investment portfolio.

It functions as a hedge against inflation and is a complementary investment that is particularly suitable for a conservative risk profile.

But is it enough to buy gold so as not to lose purchasing power? It could be enough, but possibly (depending on each case) it is not the only thing recommended.

On the one hand, it must be clear that not only gold can beat inflation and, above all, that its effectiveness against rising prices depends fundamentally on two factors.

On the one hand, the uncertainty or investor fear (which depends on the economic situation) and on the other, the opportunity cost.

As we have already explained, gold has traditionally been a haven asset. That means that, at times like the current one, gold will predictably be more and more attractive and will rise in price.

On the other hand, this also depends on your opportunity cost. In other words, the return provided, on the contrary, by other alternative assets, similar in the return-risk binomial.

As we also said before, financial markets have experienced unprecedented development in recent decades. This has allowed the multiplication of assets of all kinds.

Many of them interesting against inflation (commodities, silver or many others further away or with different profitability-risk).

Therefore, the interest in gold depends on the specific situation and the market context at any given time. What is clear is that it continues to be an option in troubled times and allows you to protect yourself from inflation.