I’m a keen investor and I keep an eye on markets to build my retirement pot.
But I am worried about the impact of inflation on my investments and I am wondering whether I should invest in gold to diversify my portfolio.
I have heard that gold is a good hedge against inflation but I’m not sure how to invest.
How can small investors gain exposure and is it better to buy physical gold or through a fund?
Time to strike gold? The commodity is often seen as a good investment in times of uncertainty
Angharad Carrick of This is Money said: It is always advisable to create a balanced portfolio and while very few people would choose to invest all their money in gold it provides a potential way to diversify.
Gold is often considered a safe haven investment because its price is usually negatively correlated to stock markets: gold often rises when other markets fall.
This is because unlike fiat currencies, which are those issued by central banks, you can’t just print more gold and devalue it in the process.
During the pandemic, the price of gold climbed and in July 2020 reached its highest point in decades.
Prices have rallied again recently, rising around eight per cent since the start of the Russia/Ukraine crisis.
Jason Hollands, managing director of investment platform Bestinvest said: While gold is often seen as an inflation-hedge – because historically at times of hyper-inflation it has helped investors circumvent collapses in the value of paper currencies, I would describe it first and foremost as a hedge against uncertainty rather than inflation per se.
There are other assets, such as inflation-linked securities, infrastructure and commercial property that have more direct-linkages to inflation than gold.
One environment that has typically not been good for gold is when yields are rising on US Treasuries – bonds issued by the US government.
That’s because bars of gold don’t provide investors with any yield and so there is an opportunity cost to holding them.
When yields on very safe…