From the era of ancient Lydia to our present day, gold has often been viewed as a stable investment and an effective hedge against inflation. It’s an integral part of modern finance, although its use as such varies depending on global economic conditions.

Inflation happens when the cost of goods and services increases over time, diminishing the purchasing power of currency. It often results from an increase in the money supply, which devalues the currency and leads to higher prices. In this context, gold is frequently seen as a “safe haven,” as its value tends to remain stable or even increase during periods of inflation.

There are several reasons why gold is seen as a protection against inflation.

Independence from Currencies

Gold’s value isn’t tied to any specific currency. This means that even if the value of a currency decreases due to inflation, the value of gold can remain stable or increase.

Universal Demand

Gold has universal demand for jewelry, industry, and as a store of value. Even during times of economic instability, demand for gold typically remains steady or increases, which helps to maintain its value.

Historical Performance during Inflation

Historically, gold has performed well during periods of high inflation. For instance, during the 1970s, a decade marked by high inflation, the price of gold increased significantly.

However, it’s important to note that, like all investments, gold also carries risks. Its value can fluctuate based on various factors such as global demand, monetary policies, and overall economic conditions. Therefore, while gold can provide some protection against inflation, it should only be part of a diversified investment portfolio.