When the economy falters, people historically turn to commodities such as gold to provide a hedge against inflation. This is just one of the reasons people buy gold coins and invest in other forms of physical gold during these times. Though gold is an inflation hedge, it is actually much more, hedging against economic crisis.
Unlike many other investments, gold is not tied to the performance of any economy. Therefore, if the U.S. dollar becomes devalued and inflation rises, gold will not decline in value. In fact, the situation is often quite opposite as the value of gold tends to increase when the dollar loses value. During times of devaluation and inflation, an investment in gold can be worthwhile.
To use gold as a hedge against inflation, investors should not wait until the inflation rate has skyrocketed. Inflation is only starting and there is no end to it, so gold has not yet peaked. Now is the time to buy gold and diversify the portfolio. How much gold to purchase is a matter of personal preference, keeping the concept of a well-diversified portfolio in mind.
Gold will keep adding value to the portfolio when the economy begins a downward spiral. In this way, it takes on the role of hedging against an economic crisis. When stocks go into the dumper, gold typically experiences a rise in value. This precious metal is worth something in and of itself and can be sold anytime throughout the world, if necessary.
When using gold as an inflationary hedge, it can be acquired in many forms. Gold bullion and gold coins are two of the most common. Gold jewelry and stocks that have physical gold backing are some other options. Gold in physical form serves as the best hedge because it can be directly exchanged for goods and services.