Historically, gold has been an excellent hedge against inflation, because its price tends to rise when the cost of living increases. For the past 50 years, investors have seen gold prices soar and the stock market crash during years of high inflation. As a result, gold is often considered a hedge against inflation. Inflation occurs when prices rise and, in the same way, prices rise as the value of the dollar falls.
As inflation increases, so does the price of gold. The short answer is yes, gold increases in value. It has been shown to be a more stable investment than the stock market over longer periods of time and, at least, it retains its intrinsic value if it does not increase. Nowadays, economies are not only growing and urbanizing, but they are also adopting mineral-intensive clean energy technologies, pointing to further increases in metal production and consumption.
Traditionally, gold has been considered a safe haven asset, and many investors turn to the yellow metal during recessions and times of upheaval. Some may use cryptocurrencies as a safe asset in difficult times, but the stability with historical gold prices shows that it is safer with less volatile price fluctuations. The dollar and the desire to keep gold as a hedge against inflation and currency devaluation help boost the price of the precious metal. Major players in gold mining around the world include China, South Africa, the United States, Australia, Russia and Peru.
It's hard to say whether the cryptocurrency boom is reducing demand for gold because there's no long history to compare. As economies and nations evolved, many countries used gold to build trust and support paper currencies. So, instead of trading gold for the short term, wait as long as you can to get the most value out of your investment. That said, some research has shown that gold sometimes performs poorly during periods of higher inflation.
While some ETFs represent ownership of real metal, others hold shares in mining companies instead of real gold. As central banks diversify their monetary reserves from the paper currencies they have accumulated to becoming gold, the price of gold tends to rise. The dollar is likely to drive up the price of gold due to increased demand (because you can buy more gold when the dollar is weaker). Therefore, gold prices may be affected by the basic theory of supply and demand; as demand for consumer goods such as jewelry and electronics increases, the cost of gold may increase.
The World Gold Council lists many new uses of gold, including medical technologies and drugs, environmental advances, engineering, the aerospace industry, and other new technologies. As a result, it's important for investors to consider the overall macroeconomic and geopolitical environment when analyzing gold. Gold is trading at its highest levels in more than a year, with high inflation and volatile commodities amid Russia's possible invasion of Ukraine.