Is gold good against inflation?
Gold is a safe investment, especially in times of economic uncertainty. When inflation rises, gold retains its value. On the other hand, the gold price is determined by a complex interplay of factors. As a result, the gold price fluctuates greatly. It depends on market supply and demand. We would like to explain to you which factors influence the gold price and how you can benefit from them.
Factors that influence the gold price
Gold is a finite commodity: unlike money, it cannot be printed. As a result, gold has many price fluctuations. Add to that the fact that the economy works according to supply and demand. When demand for a product is high, the price rises. If demand falls, the price falls with it.
Let's start by looking at what factors affect the price of gold:
1. Uncertain times: When the economy gets worse or there is political instability then the demand for gold increases because it retains its value.
2. Inflation and devaluation: When inflation rises, the value of currency falls. Because gold is independent of third parties, when inflation occurs, the demand for gold increases.
3. Interest: Gold does not earn interest. When interest rates rise, the demand for gold falls.
4. U.S. dollar: Because we trade gold in dollars, this currency affects the price of gold. A strong dollar reduces the demand for gold.
5. Gold stock banks: Central banks stockpile gold as an "apples to oranges." When the monetary system is in trouble, gold retains its value. In uncertain times, banks stockpile additional gold. When large purchases are made, gold prices rise.
Gold as a buffer against inflation
Looking at the above factors, we immediately see two conditions filled in. These are currently uncertain times: there are numerous conflicts worldwide. In addition, the Eurozone is groaning from the effects of inflation. Price pressure has not been this severe in a long time.
In times of inflation, investing in gold is often a good strategy. Overall, the demand for gold remains stable. If we then look at the price of gold throughout history, we see that it has risen historically. In fact, over the last 10 years it has gone up 85%. Note, however, that historical performance is no guarantee of future performance.
Therefore, when investing in gold, it is advisable to go for a diversified investment portfolio. Gold works very well as a long-term investment. You don't make a quick profit with it, but you do gain lasting certainty. Depending on your risk tolerance and investment objectives, an allocation of 5% to 10% in gold is generally recommended. This way you obtain a robust risk spread.
Value Shop: your responsible and reliable partner
By the way, did you know that you can purchase gold bars from Value Trading in our store? Value trading is the only gold smelter in Belgium with Responsible Jewellery Council (RJC) certification for Chain of Custody and Code of Practices.
This is an international recognition. The certification shows that Value Trading adheres to the highest standards in the precious metals industry regarding responsible business practices. Plus that they operate in accordance with strict professional standards. Read: with respect for people and the environment.
Investing in gold?
Is your interest piqued to invest in gold? Great, then be sure to check out our selections of gold bars and coins.
Not sure what you want to invest in? Then be sure to read our blog on "What form of gold is best to invest in?". There we explain very clearly the advantages and disadvantages of investing in gold bars or gold coins.
Would you like some more information? Then don't hesitate to contact us. (hyperlink) Our experts will be happy to help you further.
The information provided in Value Shop's blog posts is for educational and informational purposes only. It is not intended as financial or investment advice. Although compiled with care and accuracy, the content of our articles does not represent a professional investment recommendation and should not be construed as such.
Investing in gold and silver bars and coins involves risk and it is always advisable to seek personal financial advice from a qualified professional before making investment decisions. Value Shop is not liable for any direct or indirect financial losses or damages arising from the use of the information provided on this website.
The precious metals market can be volatile and the value of gold and silver investments can go up as well as down. Past performance of the precious metals market is not a reliable indication of future results. Value Shop does not guarantee the accuracy, completeness or timeliness of the information in the blog posts.
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