There are lots of gold assets to choose from, but certain options could make more sense now that inflation is increasing.
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Inflation is no longer hovering near 40-year highs like it was in mid-2022, but we’re not back to normal just yet. The latest inflation report, released this week, shows that the inflation rate was 3.2% in February, up from 3.1% in January. Given the negative impact that stubborn inflation has on traditional currency, many investors are now looking for ways to protect their investments from being eroded by rising prices. And, one traditional hedge against inflation is gold.
When inflation rises, the purchasing power of paper currencies inevitably declines. That makes gold, which carries no counterparty risk and cannot be inflated by central banks, an attractive investment for investors who want to preserve their wealth. If you’re looking to add some gold exposure to your portfolio as an inflation hedge, though, it’s important to understand that there are numerous assets to choose from.
The downside is you’ll need to securely store and insure your gold holdings, which can come with extra work and extra costs. But if you’re seeking a “crisis commodity” to fall back on, physical bullion is about as close as you can get to having intrinsic, universally recognized wealth.
Gold ETFs can be a smart option to consider because they provide exposure to gold prices without the hassle of personally acquiring and storing bullion. They can easily be bought and sold just like stocks through any brokerage account. However, there are small annual expenses charged by the funds, which you may want to consider before taking this route.
Gold mining stocks
Rather than invest directly in gold itself, you can gain leveraged upside exposure by buying shares of gold mining companies. When gold prices rise, the profits and stock valuations of the miners tend to surge even higher. You also have the option of investing in gold mining ETFs to gain broad exposure.
The allure of buying gold stocks is the potential for higher returns, which is great in any economic environment, but can be especially useful during times when inflation is devaluing the dollar. However, these stocks also come with higher risk than just owning physical gold or a bullion ETF, so keep that in mind as you narrow down the options.
Gold jewelry and collectibles
Beyond strictly investment purposes, gold jewelry and collectible gold coins can appreciate in value as inflation rises. While these purchases don’t provide direct exposure to gold prices, the precious metal content gives them an intrinsic material value that helps preserve wealth over time.
And, with inflation weighing on other assets, collectors tend to bid up the valuations for rare, historical gold coins in particular. These types of gold investments can grow in numismatic value alongside the underlying metal prices, providing a unique potential return stream.
Gold futures and options
For advanced traders and hedgers, gold futures contracts provide a way to speculate on future price movements or lock in current prices. However, due to the complexity, leverage and risk of losses that are associated with gold futures and options (beyond the initial investment), this gold investing option tends to be most suitable for highly experienced, risk-tolerant traders looking to make leveraged bets on gold prices.
The bottom line
As always with any type of investing, it’s important to understand your time horizon, risk tolerance and objectives before allocating capital to gold. After all, there is a wide range of gold investments to choose from, and those factors will play a role in determining which one works best for you, especially during periods of high inflation. But no matter what gold asset you decide on, when used judiciously, gold can be an important part of a diversified portfolio, providing a hedge against the insidious effects of inflation.
Angelica Leicht is senior editor for CBS’ Moneywatch: Managing Your Money, where she writes and edits articles on a range of personal finance topics. Angelica previously held editing roles at The Simple Dollar, Interest, HousingWire and other financial publications.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
