Here is why you should continue investing in gold despite cooling of inflation

Inflation in the US is reducing steadily though not substantially. This has raised questions about the worthiness of gold as an investment option. Many analysts have responded positively when asked about the option of investing in gold in the current scenario and the tendency for it to appreciate and yield high returns. Apart from the various economic reasons, many upcoming policy related decisions and current geopolitical risks support investments into this metal. Generally, gold is considered to be a safe investment option and many countries also hold on to the reserves, as part of a larger macro-economic framework.

Inflation Cooling:
In the month of May, the US recorded an inflation rate of 3.3%. This is slightly better than the month of April when the inflation rate was 3.4%. Further, the inflation reported in the month of March was 3.5%. This has been calculated on a year on year basis. The Federal Reserves would ideally like to see the inflation not exceeding 2%. With this inflation cooling being reported, investors are worried about investing in gold. Generally, higher inflation results in higher gold returns.

There are many reasons for the investors to continue investing in gold.

Inflation cooling isn’t substantial:
In the last three months, inflation has been falling by a mere 0.1% every month and this is not significant. The cost of living continues to be high and it may take more than a year for the US Federal Reserves to achieve their target of keeping inflation below 2%. During this period, prices of gold could move up.

Cyclical inflation:
As an economic concept, inflation has a tendency of being cyclical. Assuming the US Federal Reserves is able to achieve its target of 2% inflation, it will not be able to maintain this number. Inflation is cyclical and it will move up further and cool down at regular levels. In this scenario, if gold is 10% of your total portfolio assets, you will be better protected.

Not just an inflation hedge:
There are US presidential elections in November and various other geopolitical risks that are affecting the global economy. The presidential elections could result in some policy changes affecting your other investments. Gold will continue to protect your investments.

FAQs:

1. Which is the country with the largest gold reserves?
The US holds the largest gold reserves in the world. Presently, it holds 8133.46 metric tons of gold.

2. Who is the largest producer of gold in the world?
China is the largest producer of gold in the year 2024. They have produced an estimated 370 metric tons of gold.