For more than a year, the Federal Reserve adopted a a series of interest rate hikes designed to reduce inflation. While you’ve probably felt the pinch in your wallet, you may also be feeling it in your investment portfolio as the economic environment drives market volatility.
During periods of uncertainty that we face today, some investors are turning to stable investment options like gold to help mitigate some of the risks they may face elsewhere.
Gold can be a a good investment in any economy, depending on your individual goals and overall portfolio. But with today’s still-high inflation and rising interest rates, as well as concerns about a impending recession — you might think exactly how it can will be useful to you today.
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Should you invest in gold as interest rates rise?
Here are a few reasons why gold can be a good investment in today’s high interest rate environment.
Gold can help you diversify
Diversification is an important part of your investment strategy, no matter what state the market is in. Gold can make a good diversifier during volatile markets because its performance does not usually follow the ebb and flow of stocks. So when other aspects of your portfolio are down, an asset like gold can help you stay afloat.
However, it is important to diversify in a way that makes sense to you. Investing in gold amid high inflation and rising interest rates doesn’t mean you have to give up long-term investment growth out of fear. Many experts recommend invest about 5% from your portfolio into assets like gold so that you can maintain the greater growth potential of traditional markets over time.
“There will always be two or three major themes weighing on the markets to make investors nervous,” says Scott Sturgeon, CFP, founder of Oread Wealth Advisors. “Overcoming these mental hurdles can go a long way in determining which investments are right for your risk tolerance and financial needs.”
Explore gold investment options that may fit your long-term strategy with a free Investor Kit.
Gold prices are rising
Over the past few months, gold prices have been steadily rising and have even nearly surpassed their all-time highs. Experts believe this is largely due to a combination of inflationary pressures and recent crisis in the banking industry — leading people to turn into gold as a form of stability.
Although it is difficult to predict the future, some experts believe that gold prices may remain high or continue to rise in the coming months. “From an investor’s perspective, we haven’t seen the top yet,” Baruch Silverman, an investor and CEO of The Smart Investor, a financial education website, said recently. CBS News.
Although recent performance of gold, rising interest rates do not necessarily correlate with rising gold prices. In fact, the price of gold fell when the Fed first started raising rates in March 2022. But rate hikes won’t last forever and adding gold to your portfolio as a hedged asset it can benefit you even when prices fluctuate.
A free investment guide can help you learn more about investing in gold today.
Gold can offer a hedge against inflation
The catalyst for today’s rising interest rates is largely due to rampant inflation, which has made everything from groceries to travel fuel more expensive since the pandemic.
Although rising interest rates are meant to reduce inflation, it may be a long time before that happens. Rate increases are minor lowered the inflation ratebut it is still far from the Fed’s 2% target.
As continued inflation continues to keep the value of the US dollar low, this could be a good indicator of the value of gold. Historical, gold prices tend to do well when inflation reduces the purchasing power of the dollar. So as many people have turned to gold as hedging against inflation in the past may be worth it now as inflation continues to affect your costs.
The bottom row
With interest rates on the rise, there are several reasons why you might consider investing in gold today. Ongoing inflation and other factors affecting the value of the dollar have driven gold prices higher, and the asset remains a good way to diversify and potentially hedge against inflation over time.
If you’re considering adding gold today, make sure you consider your entire portfolio and long-term financial plan so you can determine the right gold allocation and investment for you.
Learn more about investing in gold now with a free Investor Kit.