Inflation is when your money loses purchasing power, which causes products purchased to go up in price to compensate for the dollars which have less value. This occurs when the government “monetizes the debt” (printing money with no backing). Only the Federal government can cause inflation, because only the government can print money. Should a private citizen print money, a jail sentence awaits that person.
Inflation has just begun, and has no signs of ending — that’s why gold hasn’t peaked yet.
When you hedge on something, you are covering yourself against catastrophic loss. If you purchased General Motors exclusively, you would have gone broke. A smart investor hedges by purchasing a wide variety of stocks in different industries. The auto industry might head down but the technology sector could be heading up.
Gold is a hedge against the dollar or any other fiat currency (money with nothing standing behind it). If the dollar is losing value and inflation is roaring out of control, gold will save you. Gold almost always goes in the opposite direction of the dollar.
When the dollar loses value gold invariably goes up. Gold and other commodities (a product that has value and is in demand) are the items which hedge against inflation. It is fungible (the same no matter where it is produced and is interchangeable).
Pure gold is pure gold.
People who wants to protect their investments and in possible scenarios, their very existence, need to diversify their investments and include gold in a rising proportion. What proportion is personal preference. As the dollar becomes less valuable the gold becomes more valuable and will be a growing store of value as the cash-based assets decrease in value.
There are many forms of gold to use as a hedge. Gold coins and gold bullion are possibilities. You can take possession of this gold or have it stored somewhere. You can also buy shares in stock companies that mine gold. It is possible to purchase gold funds, a basket of gold company stocks.
Those who believe we are heading into an extremely strong inflation, a hyperinflation, would want to have the gold close at hand. If the social order were to break down due to an economic collapse, gold sitting in a vault somewhere, would be of little help in purchasing necessities. Necessities would be food and fuel for your car. This of course is an extreme scenario.
Wherever the gold is stored and whatever form you purchased, it would be increasing in value as the dollar declines. When inflation abates, the gold can be sold to get back into the dollar. The gold was working all this time as a hedge against the dollar by keeping your net worth intact, while those in the dollar were losing money.
You must plan on how to use gold as a hedge against inflation. No person can guarantee the economic future. The main thing is to own gold and lessen your exposure to the dollar, which will inevitably go down in value. Owning rising gold stocks while the dollar falls is a fine way to hedge against inflation.
If you believe in the imminent disintegration of the economic and social order, you would convert all your assets, except what you needed to live on into gold. Gold would be sold as dollars are needed prior to the expected collapse. Extensive planning is necessary when looking to use gold as a hedge against inflation.