What does gold hedge against inflation mean?


What does gold hedge against inflation mean?

Inflation hedging

Inflation hedging is the act of protecting your assets from inflation. It is usually done by buying inflation hedging assets such as commodities and real estate. Certain stocks can also be a good hedge against inflation as opposed to most bonds which suffer from high inflation. Some pension funds can also have inflation-linked bonds in their portfolio for future liabilities. In countries that experience abnormally high inflation and their currency is in free fall, they usually resort to a different store of value such as the US dollar or digital currency.

Answer and Explanation:

Inflation means the buying power of a currency decreases due to increases in the price level of goods. Having commodities is a good hedge against inflation because their value does not decrease because of inflation. Gold is a good commodity to hedge inflation because it isn't perishable. If you own some gold now in a period of high inflation, you can usually sell it for a higher price in the future (assuming the value of gold does not decrease for other reasons).

Learn more about this topic:

What Are Commodities? - Definition, Types & Examples

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