Is Gold the Ultimate Hedge Against Inflation?

Gold is a great asset that excels during inflation. But is it a good investment for you? Moreover, learn what is the best method to invest in it.

Is Gold the Ultimate Hedge Against Inflation?

Gold- An Ancient Asset Class

Gold has been considered a good investment option for safety, security, and success since the dawn of time. It has also been used as money as well as an asset for centuries, and despite changes in other currencies, its value has remained stable.

One of the main reasons why so many people view gold as a safe investment option during challenging economic times is because of its reputation as an inflation hedge. But is gold the best protection against inflation?

In this article, we will examine the historical correlation between gold and inflation, the performance of gold during times of high inflation, the differences between physical and digital gold, the benefits and drawbacks of gold investment, and much more.

Concept of Inflation

Inflation is like a silent thief that makes the money in your pocket buy less and less over time. When prices for things like food, gas, and toys go up, your money's value goes down because you can't buy as much with it.

As a result, individuals who have saved money may find that it is now worth less than it was in the past. This shows that the value of money is diminishing.

Several factors can lead to the inflation concept, including a sudden increase in the money supply, a decreased supply of goods and services, or changes in state-governmental policies.

Investors usually look for assets that will maintain their value during times of high inflation in order to lessen the negative effects of inflation.

Relationship Between Inflation and Gold?

Gold has always been considered a great investment platform, especially when a country has a high inflation rate. This also happens due to the fact that gold prices are determined by supply and demand. Moreover, countries also buy and store gold in order to exchange it later for foreign currency, etc.

The demand for gold typically increases when the value of paper money declines due to rising inflation. During such times, people prefer to invest their money in gold, which has a historical track record of outperforming other asset classes.

Also, since gold has a sense of physical security, people tend to prefer gold and other intangible assets like stocks and bonds.

Performance of Gold In Times of High Inflation

Despite the inflation rates, gold has recently performed better than most other precious metals, including silver, platinum, and palladium, per several reports.

The price of gold increased by 28% in 2020 and has remained largely stable throughout 2021 and into 2022.

Other than that, as per the reports of Forbes, the demand for gold rose 12%, year on year, in the first half of 2022. Over the course of the year that ended in June 2022, consumer prices grew by 9.1%.

According to research, eight years between 1974 and 2008 were deemed to have high U.S. inflation. During those times, the annual increase in gold prices averaged 14.9%.

Physical Gold vs Digital Gold, Which is Better?

By looking at the above data points, if you are convinced to include gold in your portfolio, the next question remains, is it better to get physical gold or digital gold?

In recent years, digital gold has gained popularity as a substitute for real gold. Digital gold allows investors to buy and sell gold on online marketplaces. Digital gold refers to a type of investment that is designed to be a store of value, similar to physical gold.

There are multiple ways to invest in gold digitally. Some of the options include Gold ETFs, Gold Mutual Funds, SGBs (Sovereign Gold Bonds), etc.

The primary benefit of digital gold over physical gold is that it can be acquired, exchanged, and stored online. Contrarily, physical gold has the advantage of being a tangible asset that investors can hold in their hands, which may be comforting in uncertain economic times.

The benefits and drawbacks of physical gold and digital gold are summarised in the table below:

Physical Gold

Digital Gold


Asset building property


Can be physically possessed

Can be bought and sold online


Requires storage

Need a Demat account or other online wallets

Higher transaction fees

Liquidity risk

Potential for loss or theft

Tech failure or hacking may occur

Advantages & Disadvantages of Investing In Gold


  • Gold has traditionally served as a hedge over inflation, and purchasing gold may help investors preserve their money when the economy is unstable.
  • Because gold is not associated directly with other assets like stocks and bonds, it may help diversify a portfolio of investments.
  • Physical gold is a tangible commodity that consumers can own, which may provide them with peace of mind in difficult economic times.
  • Gold is a highly liquid asset that is simple to buy and sell on significant exchanges.


  • Like any investment, gold's price is subjected to swings in value, dependent on a number of variables, including the state of the world economy, political unrest, and supply and demand.
  • Unlike other investments like stocks and bonds, gold doesn't generate income (however, SGBs provide additional interest). Thus, investors must rely entirely on the growth of their investment's price to make a profit.
  • Since physical gold must be stored, an investor's portfolio may incur additional expenses.
  • Investing in gold has a certain amount of danger, especially when dealing with fake coins (bullion) and bars.


  • Gold has a long history of being viewed as a safe investment during times of high inflation due to its supply-demand dynamics.
  • Recent data shows that gold has outperformed other precious metals like silver, platinum, and palladium, with a 28% increase in price in 2020.
  • During periods of high inflation, such as the eight years between 1974 and 2008, gold prices saw an average annual increase of 14.9%.
  • Investors can choose between physical gold, which offers tangible ownership, and digital gold, which is traded online. Physical gold provides the comfort of possessing a tangible asset but requires storage and may have higher transaction fees. In contrast, digital gold offers convenience but involves the risk of tech failures or hacking.
  • Gold's price is influenced by various factors, including global economic conditions, and doesn't generate income. Storing physical gold can incur additional costs, and there is a risk of counterfeit coins and bars in the market.

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