Gold has served as along-term store of value for thousands of years and has often been used as a form of payment. Some investors opt to hold around 5-10% of their portfolio’s value in a form of gold, whether physical bars and coins or instruments such as exchange-traded funds (ETFs), to diversify their holdings and potentially hedge against crashes in the value of stocks, bonds or fiat money.
The price of gold tracks the real rate of return on money, so when the inflation rate outpaces the interest rate on money, gold tends to increase in price. As shown in the chart below, the price of gold has been range bound since peaking in late 2021 as the US Fed has bee increasing interest rates to fend off inflation. Now the price of gold id staging a come-back as the Fed is beginning to take a less aggressive stance towards inflation. Going forward, the Treasury-bond market has been predicting a recession, which would give the Fed the ability to lower interest rates, sending all markets much higher, with gold leading the way. Longer-term, the price of gold is expected to continue higher assuming the inflation rate will outpace interest rates.
As can be seen in the chart of the CPI index below, the inflation rate has finally started to decline. Accordingly, the Fed is more likely to announce "a pause with a hawkish warning" as they want to keep inflation expectations under pressure. Of course if a recession does occur, we can expect the CPI to continue lower and for the Fed to ultimately drop interest rates.
The gold has a long history as an investment vehicle, one can invest in gold in the form of SIP or as a physical once for the long-term gains to create wealth for a generation. Gold should be considered as the part of a portfolio for the purpose of diversification, particularly now as we have entered a new paradigm of persistent inflation.
Disclaimer: Please be aware that this is not financial advice and that you should conduct due diligence before investing.