Gold is often considered a better investment in times of high inflation due to several key reasons:
Inflation Hedge
Gold has historically acted as a reliable hedge against inflation and the Rand. When the general price level of goods and services rises, the value of fiat currencies decreases, leading to a loss in purchasing power. Unlike paper currencies, gold’s intrinsic value is not directly linked to any government or central bank, making it less susceptible to depreciation during inflationary periods. As a tangible asset, gold tends to maintain its value or even appreciate in real terms, offering investors a way to preserve their wealth.
Safe Haven Status
During economic uncertainty and rising inflation, investors often seek safe-haven assets to protect their portfolios from market volatility. Gold is widely regarded as a safe-haven asset due to its long-standing history of being a store of value. Inflation erodes the value of other investments, such as stocks and bonds, making gold an attractive alternative as it exhibits less price volatility during turbulent economic conditions.
Limited Supply
Gold’s scarcity contributes to its allure as an inflation hedge. The supply of gold is relatively finite, and its extraction is costly and time-consuming. Unlike fiat currencies that can be printed in unlimited quantities by central banks, gold cannot be manufactured at will. This scarcity factor helps maintain its value and drastically prevents excessive inflation from impacting gold prices.
Where to invest
You can invest directly in gold mining shares. You can buy and hold gold coins such as Kruger Rands through an exchange. You can also invest directly in an exchange-traded fund which tracks the performance of gold at a very low cost.