Effects of Inflation on Gold and Precious Metals

Inflation is characterized as a general increase in prices and fall in the purchasing value of money. But the question we want to answer is “How does this affect gold and precious metals?” We’ll get there in a moment.

When the price levels rise, each unit of currency will buy you less goods and services, therefore, Inflation reduces the purchasing power per unit of money. This can affect the economy in various ways, like increase the opportunity cost of holding money, reduce the burden of private and public debt, change in the prices and demand for Gold and precious metals and so many more.

Inflation and interest rates also have a direct relationship to one another as the smallest change on either side can have an adverse effect on each other and the economy. Inflation can be directed by many factors like rise in oil prices, rise of interest rates, rising commodities ..etc.

Gold and Precious metals

Inflation also has a direct effect on gold. When inflation rises, gold rallies. As we have mentioned earlier, inflation is the increase in prices of goods caused by the increases in the money supply, so analogous relationship can be seen between gold and money supply. Gold and other commodities that are priced internationally in US dollars automatically cost more because you’ll need more of the newly-devalued dollars to purchase the same amount of gold. With the steady increase of prices in the market due to inflation there could be a stronger demand for gold and other precious metals.

Gold as an inflation hedge

An inflation hedge is an investment that maintains or increases its value over time. Hence, an inflation hedge should provide protection against the depreciation of the currency. When you invest in Gold, this becomes a Hedge against rising inflation and the fall of the U.S. Dollar. Historically Gold has served as a Hedge from these two major problems, with the rising Inflation gold typically appreciates and when investors find out their money is losing its value, they would rather choose to put in on a hard asset that will maintain its value, by which Gold has been a prime example.


Inflation has a great impact on the prices in the market and the economy and with the steady rise of prices, investors are already looking for a hedge to maintain the value of their money. Gold has always been considered as a hedge against inflation and other economic uncertainty, so it’s a good bet to invest in gold as inflation soars higher along with other precious metals like silver and platinum.




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