3
Dec
Gold – Inflation Protection
gold nugget specimen
How can the individual investor protect herself against inflation? One solution is to exchange inflation-sensitive assets like cash and bonds for hard assets like gold and real estate. As inflation rises, the level of real interest rates decline. Consequently, the opportunity cost of holding a sterile asset that pays no rate of interest declines. Gold acts as a store of value in such an economic climate, and has the advantage of fungibility, portability and ease of conversion into cash that other hard assets like real estate lack. Those analysts and market commentators who talk of a bubble in gold simply ignore the fact that its inflation-adjusted 1980 high is nearly $2,300 per ounce.
