As recently as Wednesday, economic data served to boost the appeal of gold as an inflation hedge. The most actively traded futures contract for delivery in February reached $1,388.30 per troy ounce on the New York Mercantile Exchange. Though inflation is not expected in the immediate future, people are turning to gold to protect themselves against higher prices that may arrive.
The Fed has pumped a large amount of money into the economy in order to give it a boost. Some are wondering whether it will be able to recoup this money in time to prevent large price increases. Coupled with this is the fact that emerging markets are making economic gains. Current concerns about inflation have thus reached a global scale.
Low interest rates and quantitative easing have made gold even more attractive to individuals interested in making an investment. Consumer confidence in the dollar is still shaky and recently, concerns have arisen about the euro. Though the European Central Bank plans to purchase bonds to solidify the euro’s position, worries exist regarding the long-term economies of Ireland, Portugal, and Spain.
To protect against inflation, investors can purchase gold. As they see their dollars buy fewer and fewer goods and services, the value of gold will continue to increase. Between 1801 and 2003, one dollar in gold has grown to be worth $1.39, when adjusted for inflation. During the same period, one dollar in cash fell to a value of $0.07.
Inflation may not be right around the corner but we are already starting to see prices increase at the pump and grocery store. Anyone who wants to protect the value of the financial portfolio should put some money into gold. Taking the time to buy some gold coins, gold bullion, or gold-backed stock will help hedge against high inflation rates in the future.