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Inflation is rising again: Why you should invest in gold now
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Over the last few months, a prolonged period of cooling inflation helped to ease consumer goods price growth, reducing some of the financial pressure on Americans. However, new inflation data is sparking renewed concerns among investors and consumers alike. According to the latest Consumer Price Index (CPI) data, inflation rose 2.7% on an annual basis in November, marking the second consecutive month of increases.
While this figure remains significantly below the recent peak of 9.1% recorded in June 2022, the upward trend in inflation has raised eyebrows among economic analysts and financial experts alike. After all, this reversal in the disinflation trend suggests that the battle against rising prices may not be over. As a result, it could potentially impact everything from grocery bills to investment portfolios in the months ahead, making it harder for Americans to stay afloat financially.
And, it could also have an impact on investors. Periods of high inflation can negatively impact the value of your investments, which is why investors will often turn to gold to protect their wealth during these periods. The precious metal offers numerous unique characteristics that make it particularly attractive during periods of prolonged inflation — so if you’re looking for ways to protect the value of your investment portfolio, adding gold to the mix could be a smart move right now.
Start protecting your wealth by adding gold to your portfolio.
Why you should invest in gold now that inflation is rising
Here’s why gold investing could be a boon to the value of your portfolio as inflation continues to rise:
It offers unique wealth preservation benefits
The relationship between gold and inflation has been well-documented throughout history. As traditional currencies lose purchasing power during inflationary periods, gold typically maintains its value, making it an attractive option for wealth preservation. This historical pattern is particularly relevant in today’s economic climate, where uncertainty about inflation’s trajectory is growing.
The precious metal’s enduring appeal during inflationary periods stems from its unique characteristics as a tangible asset. Unlike paper currencies, which can be devalued through monetary policy decisions, gold’s inherent scarcity and physical nature make it resistant to the erosive effects of inflation. This quality becomes especially valuable when inflation begins to rise, as we’re witnessing now.
Find out more about how gold investing can benefit you now.
It can be used for strategic portfolio diversification
Another one of gold’s compelling attributes in the current environment is its effectiveness as a portfolio diversification tool. Traditional investment portfolios heavy in stocks and bonds can be vulnerable to inflation’s negative impacts, but gold’s historically low correlation with these conventional assets makes it an excellent hedge, potentially helping to stabilize portfolio returns during periods of market volatility.
Modern portfolio theory emphasizes the importance of diversification and gold’s unique market behavior provides precisely that. As inflation rises, the value of traditional fixed-income investments often declines, while gold frequently moves in the opposite direction, helping to offset potential losses.
It acts as a safe-haven asset
Inflation isn’t the only looming issue right now. The current global economic landscape is characterized by various uncertainties, from geopolitical tensions to monetary policy challenges. In such environments, gold’s reputation as a safe-haven asset becomes particularly valuable. The precious metal has historically performed well during periods of economic stress, serving as a reliable store of value when other assets experience volatility.
The supply and demand dynamics could pay off
The fundamental supply and demand characteristics of gold add another layer to its investment appeal during inflationary periods. Unlike fiat currencies, gold’s supply is naturally limited, and new production is relatively constant. When inflation rises, increased demand for gold as a hedge can lead to price appreciation, potentially benefiting early investors. That’s likely part of why we’re seeing gold’s price recover right now after dipping for a few weeks. More investors are adding it to their portfolios to combat inflation, so the price is increasing in tandem.
Other considerations for investors
While gold presents compelling opportunities in the current economic environment, potential investors should consider a few other factors as well before making their decision. First, unlike stocks or bonds, gold doesn’t generate regular income through dividends or interest payments. Its value appreciation primarily comes from price increases driven by market demand.
Gold prices can also show significant volatility in the short term, influenced by factors such as changes in interest rates, currency fluctuations and geopolitical events. This volatility means investors should view gold as a long-term strategic holding rather than a short-term trading vehicle.
The bottom line
By adding gold to your portfolio, you can not only safeguard your wealth against rising inflation but also bolster your financial resilience in an unpredictable economic landscape. As inflation ticks upward again, now may be the ideal time to consider this time-tested investment.
Ultimately, though, the decision to invest in gold depends on your financial goals, risk appetite and portfolio strategy. Gold’s ability to hedge against inflation, provide diversification and maintain value during economic uncertainties makes it a strong contender for inclusion in many investment plans. However, it’s essential to approach gold investing with a clear understanding of its benefits and limitations.
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This might be the best chance in years for homebuyers sitting on the sidelines to jump into the market. Five years ago, the pandemic sent the real estate market on a turbulent journey — one that started with a huge influx of buyers as rates fell and then slowed to a crawl as mortgage rates skyrocketed to over 8%, their highest level since 2000 in October 2023.
However, the market has taken a positive turn in recent months, which is welcome news for potential homebuyers. In September, the Federal Reserve cut interest rates for the first time in over four years, dropping the benchmark rate by 0.50% before reducing the rate again in November by 0.25%. Mortgage rates also dropped in tandem, and despite a recent uptick, mortgage rates are still nearly half a point lower than at this time last year, currently standing at 6.84%, according to Freddie Mac. The short housing supply that kept home prices high is also starting to ease. According to the National Association of Realtors (NAR), inventory has grown to about 4.3 months’ worth — the highest level in five years.
While housing market conditions have become more favorable for homebuyers, though, many are still struggling to take advantage due to heavy debt burdens, especially from high-interest credit card debt. Right now, cardholders are carrying an average of about $8,000 worth of credit card debt, and the Federal Reserve reports cardholders pay roughly 23% interest on that debt.
This scenario begs the question: Is it wise to buy a home while managing significant credit card debt?
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Should you buy a home if you have credit card debt? Here’s what experts say
We put the question to the experts, and here’s what they shared.
Buying a home may not be good idea
One of the most important considerations for homebuyers is whether they can comfortably afford the payments, as falling behind could put their home at risk of foreclosure. If credit card payments take up much of your budget, you might think twice before buying a home.
“If you find yourself with high-interest debt, purchasing a home might not be the right financial decision,” says Christopher Stroup, a certified financial planner at Silicon Beach Financial. “Credit card debt often comes with high interest rates, which can make them difficult to pay off. By prioritizing credit card debt repayment before buying a home, you can improve your financial stability and credit score, which could help you secure better mortgage rates in the future.”
Indeed, high credit card debt could make it harder to secure an affordable mortgage and create a difficult financial situation.
“You should pay most of your debt down. You might not be able to get the amount of mortgage you need. Your interest rate will be higher carrying debt, especially long-term debt,” Dottie Herman, vice-chair at national brokerage firm Douglas Elliman Real Estate, notes.
Learn how affordable your mortgage loan could be here.
Buying a home could still make sense
Deciding whether or not to buy a home while carrying credit card debt is a personal decision that may depend on your unique financial circumstances. If your debt is manageable and your long-term income outlook is strong, there may be a path to homeownership that allows you to make your mortgage payments while paying off debt.
“Evaluate your cash flow and create a plan,” says Sue Gardiner, owner and financial planner at South County Wealth Planning. “People are nervous when they carry debt or sometimes feel guilt over how it was acquired. And that’s ok. So, I say to clients, ‘Now we’re at this point and we just need to make a plan.’ The plan needs to have finite goals. For example, ‘I want to be consumer debt-free in 24 months.’ Then we can look at balancing a mortgage payment with debt paydown and cash flow needs.”
Always prioritize paying down debt
It’s always wise to pay off consumer debts for your overall financial health, especially if you’re preparing to purchase a home. Stroup recommends developing a repayment plan by listing all your debts, balances, interest rates and minimum payments. Then, follow a debt repayment strategy, such as the debt avalanche or debt snowball methods.
“Allocate extra funds towards your chosen repayment strategy while maintaining minimum payments on other debts,” says Stroup. “This approach requires discipline but can help you reduce your debt more efficiently and improve your credit score, making you a more attractive candidate for a mortgage.”
The bottom line
If you’re deciding whether to buy a home while carrying credit card debt, it’s helpful to identify the root cause of that debt to better understand your financial habits and whether you’re financially ready for homeownership.
“Being mindful of how the debt was acquired is important to keep in mind,” says Gardiner. “If it was due to a one-time immediate need, that’s different than accumulating due to other spending habits. Either way, being aware of your spending and saving habits will go a long way in helping you feel more control over your financial success.”
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