What makes gold a widely considered inflation hedge for shielding wealth?
Gold is a commodity like no other. Coveted throughout the ages for its natural beauty and resistance to tarnish, it symbolizes power and prestige. It’s there when monarchies crown a new ruler or a family celebrates a 50th anniversary.
Gold also plays a distinct role in the global monetary system. Simply put, it’s perceived as money, and its function as a store of value makes it arguably the world’s most popular hedge against inflation. As with any investment, the price of gold fluctuates based on fundamental factors as well as sentiment, but gold has provided a stable footing for investors during times when capital markets are rocky.
Gold has been popular amid inflation, further boosted by tariffs
Gold is a household name when it comes to hedging in uncertain or volatile markets, so historically when turbulence strikes, its popularity and value tend to rise. This trend can be observed throughout many market cycles, most notably following the Great Recession of the late 2000s, the period immediately following the COVID-19 pandemic and, most recently, amid the US tariff policy announcements of early 2025.
Heading into 2025, gold was already at an all-time high due to investor concerns about inflation, which has dominated headlines since 2022. When tariffs hit the news cycle, gold prices jumped again, peaking in April before pulling back in May as trade headlines subsided.
Gold is an important asset in central bank reserves
Thanks to its scarcity, chemical stability and malleability, gold once formed the basis for nearly all money supplies. While countries no longer use the gold standard to value their currencies, central banks continue to grow their gold reserves. The United States is ranked number one in gold reserves, its 8,100 metric tons more than double the amount held by Germany, the next largest holder of gold reserves. Italy, France and China also possess significant gold reserves, with China shifting toward gold as a means of reducing its dependence on the US dollar over time.
Although no single indicator can be used to predict the value of an investment with certainty, when powerful world governments are building stockpiles of a value-storing commodity like gold, it has tended to be supportive of prices.
Investing in gold
Investing in gold can be done in a few different ways, each with its own advantages but also risks. Here are some of the most popular:
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Buy physical gold for yourself, which can be sold easily, if need be, at its current spot price. Given that gold is highly liquid and treated as a store of value, it’s about as fungible as commodities get, and therefore quite versatile. However, transaction costs can be higher when buying or selling gold bars and coins.
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Invest in gold mining companies. Because gold is a scarce resource, the only way to increase global supply is by finding more, which is becoming harder over time. As with all mining, gold is subject to geological risk as well as changes in taxes and other government policies. Gold is mined all over the world, with some of the top producers being China, Australia and South Africa.
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Purchase off-the-shelf investment vehicles tied to the value of gold, such as ETFs and mutual funds. These allow you to attempt to track gold’s underlying value without owning any of the physical commodity, thus reducing transaction costs. And you have the benefit of a managed fund.
It's important to keep in mind that gold is highly sensitive to sentiment in the short term. While gold has historically outpaced inflation over longer periods of time, it can be volatile due to a wide range of economic and political factors. As with any investment, consulting with your trusted financial advisor can help you find the right strategy for incorporating gold into your long-term financial plan.
Past performance may not be indicative of future results. There is no assurance the trends mentioned will continue. Gold is subject to the special risks associated with investing in precious metals: price may be subject to wide fluctuation, the market is relatively limited, the sources are concentrated in countries that have the potential for instability, and the market is unregulated.
Investing in mining commodities is generally considered speculative, with high levels of volatility, limited market regulation, and emerging markets risk. Prices of precious metals such as gold are influenced by central bank decisions.
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