Gold a Hedge Against Inflation

2009-06-22T21:17:00.000-07:00

Gold is considered to be a great place to put your money in order to guard against inflation. It is a shiny metal that is deemed valuable, but why does it work to help your money keeps its buying power, even when inflation hits?

Well gold is a good hedge because

1. It is Valuable

Gold is a very valuable commodity. It is considered very beautiful especially when compared to other commodities like iron or steel. It also does not tarnish. It remains a beautiful commodity forever, and can be admired and used as long over and over again.

2. Supply and Demand

Demand is constantly going up. As the population increases more people want to have this shinny metal, and the supply remains the same. This combination of an ever increasing demand and scarcity means that it should slowly increase in value over time.

On the other hand money is constantly being printed and that makes it constantly worth less and less as time goes by. Unlike paper money gold cannot be constantly printed by any country or bank. No printing of new gold means it continues to be rare.

3. Buying Pressure

Another important reason Gold seems to fare well when high inflation kicks in is buying pressure. Everyone knows it is a good place to put your money to resist the power of inflation, so the price goes up.

This may not be the major reason for it, but it does certainly has some sort of an effect on the price of gold when a currency is going down.

INSURANCE AND INVESTING

Gold a Hedge Against Inflation