Is gold the answer to soaring inflation?

Gold is up almost 10% since the turn of the year – far above the UK’s rate of inflation. Karl Talbot takes a look at how gold might perform in the future.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Concentrated young african american black guy sitting on heated floor at modern coffee table in living room, looking at laptop screen

Image source: Getty Images

Gold is seemingly making a comeback. Following years of disappointing returns, the price of the precious metal has taken a turn for the better in 2022. So far this year, gold is up almost 10%.

So, will gold continue to beat inflation, or has its price already peaked? Let’s take a look.

[top_pitch]

What has happened to the gold price this year?

So far this year one troy ounce of gold has gone from £1,338 in early January to £1,469, as of Tuesday 5 April. That’s a rise of 9.79%.

Compare this to the FTSE 100, which has risen just 1.45% since the year began, and the FTSE 250, which has fallen 10.63%, and it’s not hard to see how gold has quite literally shone during the early months of 2022.

Gold hasn’t just outperformed the UK stock market this year. Its near 10% rise also compares spectacularly well to the US S&P 500 (-5.11%), Germany’s DAX 40 (-9.96%), and the French CAC 40 (-7.92%).

How had gold compared to inflation in 2022?

Unless you’ve been hiding from the headlines in recent weeks, you’ll know that the UK inflation rate is soaring right now. It currently stands a 6.2% which is a 30-year high. What’s more, the Bank of England expects inflation to continue rising.

The UK’s central bank’s latest calculation suggests inflation will climb to 8% by June. Others outside the bank suggest it could even hit double digits before the end of the year.

Given the current 6.2% inflation rate from February 2022 – the most recent data released by the Office for National Statistics (ONS) – we know that so far this year, gold has outperformed the rate at which prices are rising by a hefty 3.5%.

The ONS will release inflation figures for March on Wednesday 13 April.

[middle_pitch]

Will gold continue to outperform inflation?

Investors who piled in to buy gold over the past three months or so are likely to be sitting on a tidy profit right now. That said, it remains to be seen whether gold can build on its stellar start to 2022.

Traditionally, gold is seen as an asset that holds its value, especially during times of uncertainty. And of course, 2022 has delivered big dollops of uncertainty.

With a war in Europe, rising inflation, sluggish employment data and questions surrounding global post-pandemic recovery, it’s been hard to think of a year like it. Because gold has held its value so well in 2022, it’s fair to say that the precious metal has clung to its wealth-holding reputation so far this year.

While it’s almost impossible to predict how the precious metal will fare for the rest of 2022, the future value of gold is likely to depend on a number of factors.

For example, should economies around the world begin to grow or global inflation worries subside, then it’s very possible share prices will rise in the near future. If this happens, investors may start to move away from commodities, such as gold. This would likely have a negative impact on its price.

On the flip side, should things take a turn for the worse, or a new, unforeseen event occur, then we could witness more investors flocking to gold. This would likely send the precious metal soaring further, potentially to a new all-time high. Gold’s current all-time high is £1,560 an ounce, which it achieved in January.

How can you invest in gold?

If you want to invest in gold, you have two options:

  • Buy the physical commodity. To buy actual gold, you can use the services of a gold bullion company. 
  • Buy a gold exchange-traded commodity (ETC). When buying a gold ETC, you won’t own the physical commodity. Instead, your investment will track the price of gold.

It’s fair to say that buying a gold ETC is typically the option preferred by those who don’t have huge sums to invest. It’s also typically the go-to for investors keen to swerve the costs associated with storing physical bullion.

So, if you do want to buy a gold ETC, then you can do so via a normal share dealing account. To learn more about investing in assets, take a look at The Motley Fool’s guide to the different types of investments.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

More on Personal Finance

Note paper with question mark on orange background
Personal Finance

Should you invest your ISA in a model portfolio?

Which model ISA portfolios offer both high performance and low fees? Hargreaves Lansdown, Interactive Investor and AJ Bell go under…

Read more »

Economic Uncertainty Ahead Sign With Stormy Background
Personal Finance

Is it time to exit emerging markets investments?

Investors may well be sitting on losses from emerging markets funds. Is it worth keeping the faith for a sustained…

Read more »

Personal Finance

Share trading? Three shares with turnaround potential

Share trading has been difficult in 2022, but which companies have turnaround potential? Jo Groves takes a closer look at…

Read more »

Man using credit card and smartphone for purchasing goods online.
Personal Finance

Revealed! Why Gen Z may be the savviest generation when it comes to credit cards

New research reveals that Gen Z may be the most astute when it comes to credit cards. But why? And…

Read more »

Environmental technology concept.
Personal Finance

The 10 best-performing sectors for ISA investors

The best-performing sectors over the past year invested in real assets such as infrastructure, but is this trend set to…

Read more »

Road sign warning of a risk ahead
Personal Finance

Recession risk ‘on the rise’: is it time for investors to worry?

A major global bank has suggested the risk of a recession in the UK is 'on the rise'. So, should…

Read more »

pensive bearded business man sitting on chair looking out of the window
Personal Finance

1 in 4 cutting back on investments amid cost of living crisis

New research shows one in four investors have cut back on their investing contributions to cope with the rising cost…

Read more »

Image of person checking their shares portfolio on mobile phone and computer
Personal Finance

The 10 most popular stocks among UK investors so far this year

As the new tax year kicks off, here's a look at some of the most popular stocks among UK investors…

Read more »