NEW! Our Hero’s Journey tool can help you with your next step towards financial freedom - click here to try now.

Inflation causing traders to turn to gold

Inflation causing traders to turn to gold
Image source: Getty Images

Gold has often been used as a hedge against inflation, and it looks like this trend may be repeating itself.

Here’s what’s going on and the reasons causing a shift in investing attitude amongst traders.

Compare stocks and shares ISAs

If you’re planning to open a stocks and shares ISA, choosing the right platform is important. To help you narrow down the choices, we’ve created a list of some of the top stocks and shares ISAs.

Inflation figures change investment behaviour

Recent trading activity at shows that investors are rotating away from higher-risk assets like meme stocks and cryptocurrency.

Instead, they are moving into the ancient medium of exchange: gold.

Trading in gold is sometimes seen as a bit uncool or boring. But some bubble stocks are popping, the cryptocurrency market is crashing, and inflation figures are rising. So gold is starting to look more attractive.

Investors are becoming more cautious

Market sentiment seems to be shifting to a more wary approach. David Jones, chief market strategist at explains the changing landscape: “The nagging worry for investors at the moment is still inflation. This goes some way to explain activity by our clients this week.

“Gold was one of the top-traded assets by our users. Traditionally seen as a hedge against inflation and uncertainty, the yellow metal hit its best levels for a month on Thursday (15 July 2021) – although it is still around 12% off its all-time high set last August.

“This was despite, or perhaps, because of, comments by the Federal Reserve Chairman Jerome Powell saying that inflation had notably increased, and would stay relatively high for a few months before returning back to normal.

“It has been a frustrating time for gold bugs in the past 10 months, with investors lured away by stock markets continuing to grind higher. The rise in the price of gold this week may be a suggestion that some traders think that this temporary inflation aberration may last a little longer than central bankers expect.”

Are you making these 3 common investing mistakes?

These all-too-common investing errors could lead to missing out on the long-term wealth-building power that shares can hold….

To help you better understand these pitfalls, how you could avoid them and move forward on a path to wealth-building, we’ve created a free report, “The 3 Worst Mistakes New Investors Make”.

Just enter your best email below for instant access to your free copy.

By checking this box and submitting your email address, you agree to MyWalletHero sending you emails with money tips, along with details of products and services that we think might interest you. You can unsubscribe from future emails at any time. You also consent to us processing your personal data in line with our privacy policy, and our cookie statement. For more information, including how we collect, store, and handle personal data, please read our Privacy Statement and Terms & Conditions.

Buying gold to protect against inflation

When creating your investing strategy, diversification is important. Part of the reason it’s so vital to diversify is to make sure that your investments will perform well under different market conditions.

There will be periods of low inflation and times of higher inflation. So it’s worth checking that your plan can perform well under both conditions.

Gold is just one sector that tends to perform well during inflationary periods. Because the supply of gold has no connection to a currency or regular markets, this can shield its price from the effects of inflation.

Although this has been the case in the past, there is no guarantee that the price of gold will outpace rising prices going forward.

Investing to beat inflation

Some share dealing accounts will allow you to invest in a wide range of assets. This will give you a better chance of creating a diversified portfolio that beats rising prices.

Another option is to use a platform or investing solutions provider to build and manage a multi-asset portfolio for you. This way you can have diversity without spending lots of time researching every component.

Remember that there is no guarantee investments will rise in value and you may get back less than you put in. So be sure to do your homework and realise that there is often no silver bullet for beating inflation.

Reviewed and rated 4 stars out of 5 by MyWalletHero

Need investment advice? Get a free initial review lasting up to 1 hour, plus £50 off any follow-up advice.

MyWalletHero has sourced you a £50 discount off the cost of advice when you find an independent or whole-of-market financial adviser through*. All advisers are FCA-regulated, qualified and give fully unbiased advice. To find yourself an adviser fast and for free – use the Unbiased matching tool.

*This is an offer from one of our affiliate partners. For more information on why and how we work with partners, click here.

Was this article helpful?

Some offers on MyWalletHero are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.