Is Gold A Hedge Against Inflation?

Is gold a good hedge against inflation?  Only if the inflation causes order flow to be generated.

Gold may be a good hedge against inflation, but the only reason is that there are a lot of market participants that perceive it to be so. If they perceive it to be so, then if inflation starts to rocket higher and CPI is hitting 3-5% and people are scared of inflation expectations going higher as well as the commodity complex going higher then that can generate bullish order flow into gold.

However, just because inflation numbers are running high that doesn’t mean gold prices will automatically shoot up. You need to have other market participants coming to the same conclusion as you(that Gold is a hedge against inflation) and start generating bullish order flow into gold, AFTER you get into your position to make a profit. Hopefully, they come to that conclusion BEFORE your stop loss gets hit.

Just because you can’t print more of it doesn’t mean that it is automatically an inflation hedge. There are a lot of other investments/currency pairs that can perform well if inflation is running high. Commodity currencies can benefit from inflation if it is derived from strong global growth and subsequent interest rate increases in the commodity countries make those currencies attractive. In such a situation both gold and the commodity currencies would benefit. The difference from the two is that with Gold you can’t print more of it, but with commodity currencies you can print more of them according to your beliefs. But in the end both would still benefit.

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