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MoneyWatch: Managing Your Money

How gold protects investors during times of inflation

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By Rickie Houston

/ CBS News

Global finance
Gold can help protect investors when the value of the dollar is low.  Getty Images

Investing in gold can not only offer perks like portfolio diversification but also protection against inflation. Gold — as well as assets like real estate and bonds — have proven to be a solid inflation hedge over the years. Both Inflation and interest rates have soared over the past year, and gold's relatively stable value can combat the rising costs of goods, in addition to rising interest rates. 

And there are several ways you can invest in it. This includes gold bars, gold ETFs, gold mutual funds, and gold futures. Plus, you can invest in a gold IRA through an online provider or self-directed IRA (SDIRA) platform.

If you think you could benefit from investing in gold then start by requesting to learn more about this unique investment opportunity.

How gold protects investors during times of inflation

You won't necessarily make money by investing in gold. But unlike some other investments, which are prone to react to market developments and bouts of inflation, gold usually remains steady and serves as a reliable way of protecting your money. So, for example, if you invest $1000 in gold it's likely to remain worth that amount (or close to it) regardless of inflation activity. You can't say the same for other investments like stock and real estate.

When the rate of inflation is quicker than interest rates increases, gold can be more beneficial to invest in, according to research from the . When the U.S. dollar isn't as advantageous as it once was, investors look for safer alternatives, gold being one of them. 

Between October 9, 2007, and March 9, 2009, the S&P 500 index was down by 56.8%, according to . Gold, however, rose by 25.5%. The same has happened multiple other times, proving that gold typically weathers economic storms.

And since its value remains consistent — though it isn't immune to gold bubbles (or short-term episodes of volatility) — in times of economic turmoil, it can safeguard you against losses and tanks in the buying power and the value of the dollar. Plus, it is much easier to liquidate than other assets like bonds.

But experts don't recommend allocating more than 10% of your portfolio to gold. This not only limits risk but can also leave room for investments in other assets like stocks, ETFs and mutual funds.

If you think you could benefit from the protection that gold investing provides then start by requesting  to learn more.

The bottom line

Gold has previously demonstrated an inverse relationship with the dollar; that is, when the value of the dollar decreases, that of gold increases. In addition to portfolio diversification, this investment can be ideal in times of inflation and economic downturn, given that its value remains fairly constant over long periods of time.

Plus, it may still make sense to invest in gold even if you aren't doing so in times of economic crisis. In fact, data from Goldsilver shows that the beginning of the year, March, early April or mid-June to early July are the best months to invest in gold.

But it's nonetheless wise to do your research before investing in the asset.

Have more questions? !

Edited by Matt Richardson

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