Inflation is back in the news and so, of course, is interest in gold.
After years of dormancy, inflation is expected to rise a bit this summer. It is even possible that as Americans emerge from Covid-19 induced seclusion, their pent-up demand will overheat the economy and weaken the dollar.
Those concerns have put the spotlight on gold, which has long been viewed as a hedge against inflation, a declining dollar and an unstable stock market. Buy gold now and make a quick profit, or so the thinking goes.
But this analysis has problems, starting with the outlook for inflation, which isn’t necessarily that bad. The inflation rate ended 2020 at an anemic 1.4 percent, and Jerome H. Powell, the Federal Reserve chair, has said that despite the potential for a modest surge above 2 percent this summer, the Fed doesn’t expect inflation to move much higher between now and 2023.
Perhaps that’s why gold hasn’t been soaring lately, either. After peaking at more than $2,000 an ounce last summer, gold prices hovered below $1,750 in early April, a decline of nearly 13 percent.
Warren E. Buffett likes to point out. Finally, investors who buy physical gold face the additional risk and cost and of securing their bullion or coins.
A more cautious approach is to avoid chasing returns. Instead, keep a small percentage of a portfolio in gold and other precious metals in the hope that this will be a long-term stabilizer.
“In a world where equity prices continue to elevate untethered to any fundamentals, precious metals as a small amount of diversification makes sense,” said David Trainer, chief executive of New Constructs, an investment research firm based in Nashville.
George Milling-Stanley, chief gold strategist at State Street Global Advisors, said gold offers two benefits over the long term: protection against risk and volatility, and as asset appreciation.
“Gold is a defensive asset that really comes into its own over the long term, when you can enjoy the return stream,” Mr. Milling-Stanley said.
restrained, rarely rising above 3 percent annually and remaining around 2 percent or less most of the time. Gold prices, however, rose from $274 an ounce at the beginning of 2001 to about $1,750 at the end of March.
“We don’t need inflation,” Mr. Milling-Stanley said. Gold performed well anyway.
Some experts recommend investors stick to E.T.F.s that focus strictly on gold, which tends to lead the other precious metals, silver and platinum. Advisers warn that gold, precious metals and other commodities should make up just a sliver of an individual’s portfolio, usually no more than a total of 5 percent.
Whatever its drawbacks as an investment, gold has had an enduring appeal.
“There is a psychological component in owning gold that goes back for centuries,” Ms. Simonetti said. “It’s an asset that gives peace of mind to investors. It just makes investors feel safe and secure.”