Is Gold a Good Hedge Against Inflation? (Is There a Better Alternative?)

by Hunter Robillard

Gold is often viewed as a reliable inflation hedge. That’s because this precious metal tends to increase in value as the buying power of the dollar declines.

So, during high inflation times, it might be worth putting your money into the best gold stocks.

However, gold stocks might often be volatile. So, you might also need to explore other alternative investments like fine wine.

Let’s discover if gold is a good inflation hedge, the gold inflation relationship (correlation between inflation and gold prices), and more.

Is Gold a Good Hedge Against Inflation?

Gold usually serves as a reliable inflation hedge.

In fact, inflation data confirms that gold preserves its value over a long period of time. From 1895 to 1999, gold price increased by an average of 0.3% per year.

When the inflation rate and consumer prices were higher in the 1970s, the demand and price of physical gold increased.

So, gold may be a reliable investment during higher inflation times (when the purchasing power of the United States dollar deteriorates.)

Besides, the underlying inflation pressures experienced in early 2022 (caused by Russia’s invasion of Ukraine) brought the best gold returns. During this period, spot gold traded at an impressive $1,912 per ounce.

However, the price surge isn’t expected to last because gold is a volatile commodity. In fact, the price of gold bullion will likely drop to around $1,600 per ounce in the near future. So, gold returns will likely decline.

Now, it might be worth putting your money into gold only if you want to navigate the current underlying inflation pressures.

But if you want a profitable long-term investment, it might be worth exploring alternatives like fine wine.

What Is the Correlation Between Inflation and the Price of Gold?

Sharp increments in inflation usually show a strong correlation with the demand and price of gold bullion.

According to inflation data from the World Gold Council, between 1974 and 2008, there were only 8 years when the US inflation rate was high (5% or more.) During these high inflation periods, gold price increased by an average of 14.9% year-over-year.

However, there’s often no direct correlation between moderate increments in inflation and gold price. So, it’s often easier to determine the gold inflation relationship only during higher inflation periods.

Between 1974 and 2008, during periods of moderate (2%-4.9%) and low inflation (below 2%), the World Gold Council indicates that gold brought “mildly positive” real returns.

The Federal Reserve Bank’s monetary policy also plays a critical role in gold prices. Simply put, the monetary policy refers to a policy that the Federal Reserve Bank (central bank) uses to adjust the interest rate or money supply.

For example, the Federal Reserve Bank may use the monetary policy to lessen inflation (known as the contractionary policy.) Consequently, a decline in inflation might lead to a reduction in gold prices.

What Is the Relationship Between Gold Prices and the US Consumer Price Index (CPI)?

Gold shows no correlation with the changes in the United States Consumer Price Index (CPI.) The CPI measures the monthly changes in the prices of consumer products.

Since 1971, only about 16% of the changes in gold prices can be explained by the changes in the CPI.

In early 2021, the price of gold rose when the CPI was high. However, the price of this precious metal declined from $1,900 to around $1,800 while the CPI remained high.

The 10 Best Gold Stocks to Buy During Inflation

Here are the best gold stocks worth investment during rising inflation periods.

Franco Nevada Corporation (NYSE: FNV)
Wheaton Precious Metals Corp. (NYSE: WPM)
Newmont Corporation (NYSE: NEM)
Royal Gold, Inc. (NASDAQ: RGLD)
Kinross Gold Corporation (NYSE: KGC)
Hecla Mining Company (NYSE: HL)
Gold Fields Limited (NYSE: GFI)
Barrick Gold Corporation (NYSE: GOLD)
Rio Tinto Group (NYSE: RIO)
Freeport-McMoRan Inc. (NYSE: FCX)

1. Franco Nevada Corporation (NYSE: FNV)

This gold-focused company has an impressive dividend yield history. In late January 2022, it recorded a 7% increment in the quarterly dividend yield - from $0.30 to $0.32 per share.

In the fourth quarter of 2021, it beat market expectations by recording earnings per share of $0.44 and a revenue of around $10 million. So, it’s a reliable stock to invest in during rising inflation times.

2. Wheaton Precious Metals Corp. (NYSE: WPM)

This Canadian-based company sells precious metals such as gold and spot silver.

It has a solid dividend yield history. According to stock exchange firms on Wall Street, this company had a quarterly dividend of $0.15 per share in March 2022.

3. Newmont Corporation (NYSE: NEM)

Newmont Corporation is the world’s largest gold mining company. On the 17th of March 2022, it announced plans for its Coffee Gold project, which aims to extract nearly 9 million metric tons of ore annually.

The Bank of America gave the stock a “buy” rating and raised its price target from $70 to $75.

4. Royal Gold, Inc. (NASDAQ: RGLD)

This company buys and manages precious metals. In November 2021, it raised its dividend yield from $0.30 to $0.35 per share - a 17% increment (according to reports from stock exchange firms on Wall Street).

Its revenue for the second fiscal quarter of 2022 was around $168 million.

5. Kinross Gold Corporation (NYSE: KGC)

This corporation acquires and develops gold properties. Jefferies Group (an investment bank) gave it a “hold” rating and raised its price target from $5.5 to $6.

6. Hecla Mining Company (NYSE: HL)

This is a gold, silver, and precious metals mining company based in Idaho, USA. It’s estimated to have produced 3.3 million oz of silver and 41,642 oz of gold during the first quarter of 2022.

On the 23rd of February 2022, it recorded a quarterly dividend yield of $0.0063 per share - a 0.8% increase from the previous value. Roth Capital (a privately held investment banking company) gave it a “neutral” rating and a price target of $6.50 on 12 April 2022.

7. Gold Fields Limited (NYSE: GFI)

This is an esteemed South African-based gold mining company. It recorded a quarterly dividend yield of $0.139 per share on the 9th of March 2022.

JPMorgan (an investment banking company) gave it a “neutral” rating and a price target of $15.30 on 4 April 2022.

8. Barrick Gold Corp (NYSE: GOLD)

Barrick Gold Corporation is a mining company that produces gold and copper. Jefferies Group gave it a “hold” rating and raised its price target from $23 to $24.

9. Rio Tinto Group (NYSE: RIO)

Rio Tinto Group is the world’s second-largest metals and mining corporation.

It has a price target of around $100.13. On the 11th of April 2022, Goldman Sachs (an investment banking company) gave it a “buy” rating.

10. Freeport-McMoRan Inc. (NYSE: FCX)

Freeport-McMoRan Inc. is an American minerals and mining company. In the first quarter of 2022, it generated a revenue of $6.6 billion - a 36% increment compared to the previous year.

On the 5th of April 2022, the Deutsche Bank gave it a “hold” rating and raised its price target from $42 to $50.

Why Fine Wine May be a Better Investment During Inflation

Most investors often put their money into gold bullion or gold futures to offset inflation expectations.

However, gold investors don’t realize that fine wine usually yields more profits than investing in gold futures, gold bullion, and other precious metals. That’s because the fine wine market is less volatile than the stock market.

While most stocks have been inconsistent in the past 15 years, fine wine produced around 13.6% annualized returns during the same period.

Also, if you had invested $100 in one of the finest vintages of 1960, there’s a good chance that your investment would now be close to $500,000!

Vinovest is a reliable website that can help you buy, store, and sell wines that are in high demand. After signing up, an expert will offer you the best investment advice so you can build a profitable portfolio.

Investing in Gold During Inflation: Is It Really Worth It?

Consumer prices keep rising, and the central bank (Federal Reserve Bank) keeps raising the interest rate. During such periods, most investors invest in spot gold to overcome inflationary pressures.

Although physical gold can be a reliable inflation hedge, its performance is usually inconsistent. So, gold bugs (gold investors) should consider other profitable investments like fine wine.

If you need some wine investment advice, visit the Vinovest website today. This AI-powered platform makes it easy for you to invest in fine wine bottles from around the world.