Tips for Gold Investors to Keep in Mind During Decreasing Inflation

Millions of Americans received welcome news this week after the Bureau of Labor Statistics announced another inflation rate drop. Now at 2.5%, the rate is almost in line with the Federal Reserve’s target 2% goal, all but ensuring that the Fed will start issuing interest rate cuts when it meets again later this month. While a cooling inflation rate will help reduce costs and eventually cut borrowing expenses, it can also lead to some adjustments for investors, too.

In recent years, many have turned to gold and precious metals for the benefits they offer during inflationary economic periods. Since gold can often maintain and even rise in value during such periods, many invested in the metal, with investments in the precious metal hitting an 11-year high last year. But a significantly cooler inflation rate may be causing some investors to wonder about the value of investing in gold right now. Below, we’ll detail three factors to remember as the rate continues to drop.

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What gold investors should remember as inflation continues to cool

Here are three critical things gold investors should remember as this current inflationary period appears to be coming to a close:

Inflation is cyclical

It may not feel like it’s worth investing in gold now, as inflation has dropped from around 9% in 2022 to under 3%, but investors should remember that inflation is cyclical. It will rise at some point in the future. And as can be seen in the wide swings in the economy in recent years, that point could be sooner than it seems right now. 

It makes sense, then, to build in the portfolio protection that gold can provide so you’re not caught off guard when inflation ticks back up again. Use this time instead to research your best gold options and start investing in the right one now to better protect against future inflationary cycles.

Additional Insight: Gold has historically been a reliable hedge against inflation, so understanding its cyclical nature and long-term value can help investors make informed decisions.

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Gold is a long-term investment

Gold may be something you’ve only recently invested in or are considering right now, but it’s not like some other assets. It’s traditionally a long-term investment that can be relied on over many years, not something that can turn a quick profit. And that safe-haven reputation is no different today, even with inflation falling. Yes, you may be able to generate income from gold, but it will almost always take an extended period to do so. So get invested now, but remember what gold can and can’t do for your portfolio in the short term, too.

The price could soon become prohibitive

Factors that drive the price of gold, like geopolitical tensions and inflation, are still prevalent, even with a cooling inflation rate. And the price of gold has responded, breaking numerous price records this year. Hovering around $2,500 per ounce currently, some experts expect gold to soon pass the $3,000 mark. And that’s with inflation much lower now versus what it’s been in recent years. 

So, if you’re thinking that the price of gold will fall again now that inflation is falling, you may be wrong. Instead, the price could soon become prohibitive. Consider acting now before you’re priced out altogether.

Additional Insight: The factors influencing the price of gold are multifaceted and can lead to unexpected price movements, underscoring the importance of strategic decision-making in gold investments.

The bottom line

A cooling inflation rate doesn’t mean that a gold investment can’t still be valuable. Investors should instead take a broader view, remembering that inflation is cyclical and that it can and will rise again. Gold is also still best as a long-term investment and the price, over time, only heads upward. Waiting for the price to fall like the inflation rate has could be a mistake. Still, gold is a unique asset not fit for everyone’s portfolio, so if you do get started, consider limiting gold to a maximum of 10% of your overall portfolio, as many experts recommend.