Can you fend off inflation with gold?

Inflation in the United Kingdom is increasing

Would buying gold shield your portfolio from price increases?

After the UK's June 2025 inflation rate of 30.6 percent, investors and savers began to question how they could safeguard their money from the damaging effects of inflation.

Putting money into gold might be one way. For a long time, the yellow metal was thought to be an inflation hedge. There is a limit to the amount of gold in the world, aside from the unscalable examples of scientists converting lead into gold through alchemy.

Rick Kanda, managing director at The Gold Bullion Company, stated that "gold's value tends to increase during longer periods of high inflation because the commodity has a limited supply." He added that "investors sometimes turn away from stocks and invest in previous metals instead" during these times.

Investors must use shrewdness when making decisions due to inflation. Cash won't cut it because inflation tends to outpace cash returns over time. If you haven't thought about investing yet, now is a good time to start.

In recent years, inflation has been out of control, and the price of gold has increased along with it. To what extent, however, do gold prices correlate with consumer prices, and can gold be used by investors as a hedge against inflation?

How does inflation relate to the price of gold?

Long-term correlations between inflation and gold prices are not entirely evident.

In the graph below, the price of gold in pounds is plotted month by month against the headline consumer price inflation in the UK for the five years leading up to June 2025.

Although there have been times when gold prices have increased in tandem with inflation, the relationship is not always smooth. Gold prices have been rising since 2023, while inflation rates have been declining. The headline inflation rate and gold prices in pounds have been moving in opposite directions since the beginning of 2024.

There are numerous explanations for why the two don't move simultaneously. Gold's price is less directly correlated with the UK economy because it is traded in dollars rather than pounds.

Additionally, factors other than currency devaluation have an impact on the price of gold. Increased central bank purchases of gold served as the catalyst for the 2024 gold rally. That obviously has nothing to do with the direction that gold prices are going.

However, gold generally performs well as a commodity on a larger scale during times of global instability and inflation.

"Inflation has a significant impact on the price of gold," Kanda stated. Inflation is one factor where gold usually does well in uncertain economic times brought on by international disputes and tariffs.

How can gold help investors protect themselves from inflation?

According to Kandas, purchasing gold coins or bullion is the best way to use gold as a hedge against inflation.

Coins, he claims, provide a good compromise between divisibility and price. At a gold dealership, they are also easily exchanged and reasonably liquid.

Additionally, gold coins are not subject to capital gains tax.

Beginner gold investors, however, should also think about gold bars because they are typically less expensive to manufacture than coins, which lowers the price per gram of gold bars.

Kanda adds, "If you decide to sell later, this could help maximize your profits."

Investors may also choose to invest in a gold fund if they do not wish to hold actual gold.

How else can investors protect themselves from inflation?

Gold is not the only option for providing some inflation protection for your investments.

Although inflation can obviously hurt some industries and persistent inflation can harm market sentiment, the stock market generally outperforms inflation over the long run.

A possible inflation hedge is real estate, since rising home prices typically reflect rising consumer prices.

Learn more about inflation hedging by reading our explainer.