Commodities

Kitco: Gold Is “Good Money” As a Hedge Against Inflation and Default Risks

Posted on by Andrew Packer

Gold prices have had some wild swings in the past few weeks. After closing over $2,400 for the first time last week, prices sold off slightly this week. However, the trends that make gold a popular investment remain in place.

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    • Those trends include today’s inflation. With inflation still running hot, having some allocation to gold looks like a reasonable investment for most traders right now. If inflation unexpectedly soars, gold should protect a portfolio’s value.

    Other trends make sense for gold right now as well. Unlike many other traditional assets, gold has no counterparty risk. In contrast, a bond depends on the other party honoring their commitment. And a stock relies on company management running a company well.

    Gold offers the lack of a counterparty risk like cash. But since it tends to hold its value compared to inflation, gold has seen rising popularity in recent months.

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    Meanwhile, gold doesn’t offer the cash flow of a bond. While that’s a mark against gold, bonds may not be attractive if interest rates come down again.

    Besides the lower interest payments, countries facing rising debts could end up paying down their debts with printed money, creating more inflation.

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    • Overall, among the major asset classes, gold is having a moment in the sun. And it looks likely to continue.

     

    To see the full analysis for a further move higher in gold now, click here.