Precious Metals vs Inflation

Precious Metals vs Inflation

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If you are considering how you can use precious metals in protecting your wealth during times of inflation, then this article is for you. From gold to platinum, these have been sought after for centuries for their rarity and unique properties. But what exactly is inflation and how does it relate to these assets?

Inflation is a term that many of us are familiar with, as it affects our daily lives through the rising cost of goods and services. It occurs when the general level of prices for goods and services in an economy increases over time, which can be caused by a variety of factors. This can lead to a decrease in the value of money and a decrease in purchasing power.

So, how can precious metals help you protect yourself from this economic turmoil? While there is a long-standing debate on the effectiveness of these assets, many continue to turn to these as a means of diversifying their portfolios and mitigating risk.

In this article, we will explore the intricacies of the precious metals industry and how these assets can protect you from economic uncertainties.

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Precious Metals vs Inflation

The Relationship Between Inflation and Precious Metals

Inflation and precious metals have a complex relationship that has long been of interest to investors. While paper money is vulnerable to inflation, physical precious metals such as gold and silver are resistant to it. This is because their value is derived differently than paper money or currency.

The strength of the dollar, for example, is tied to the policies of the Federal Reserve and other central banks, as well as international and domestic economic conditions. When central banks determine that more cash is needed to boost lending and growth, they issue additional currency, which increases the money supply. This additional paper currency in circulation can significantly reduce the value of the dollar over time, leading to inflation.

In contrast, precious metals’ rarity and numerous applications give them intrinsic value. For example, gold is used in the production of various products, including jewelry, coins, and bars. As a result, gold's inherent worth comes from its usefulness in many different fields, rather than its value being determined by central banks.

Thus, it has remained popular as a store of value and medium of exchange for thousands of years. When the value of the dollar drops due to economic instability or a recession, investors seek safe-haven assets, such as actual gold and silver. A rise in demand for precious metals can lead to price increases, which can provide a safeguard against a declining value of the dollar.

In order to better understand the relationship between these two, continue reading below to know more about precious metals and inflation.

Precious Metals vs Inflation

What are Precious Metals? 

Precious metals are a group of metallic elements that are highly valued for their rarity, beauty, and physical properties. The four main precious metals are gold, silver, platinum, and palladium. Each of these has unique characteristics that make them valuable for a variety of applications, from industrial and medical uses to jewelry and currency.

Types of Precious Metals

  • Gold is perhaps the most well-known and has been used as a form of currency and a store of value for thousands of years. It is highly sought after for its rarity, durability, and resistance to corrosion. 
  • Silver is another highly valued precious metal that has been used for currency, jewelry, and industrial applications. It is a popular option after gold as it is less expensive, making it more accessible to those with limited capital.
  • Platinum is a dense, malleable, and highly resistant metal that is often used in the production of catalytic converters, which are used to reduce emissions from automobiles. The rarity of platinum makes it a valuable investment option, but it can also be expensive due to its scarcity. 
  • Palladium is a relatively new investment option and is highly valued for its unique physical and chemical properties. It is used primarily in the production of catalytic converters and electronics and jewelry. Palladium's limited supply, like platinum, can drive its prices up, even during economic instability. However, it can also be pricier than other metals.

Precious Metals as a Hedge Against Inflation

This section will explore how precious metals act as a protection against economic uncertainty. 

Performance of Precious Metals During Inflationary Periods

There are numerous instances wherein we see how these assets can be a way for us to preserve wealth during economic instability. For example, during the 2008 financial crisis, gold and silver prices increased significantly as investors sought safe-haven assets. Similarly, during periods of high inflation in the 1970s and early 1980s, gold prices increased dramatically.

However, it is important to note that the relationship between precious metals and inflation is not always straightforward. For example, during periods of economic stability, these assets may not perform as well, as investors may be more focused on other opportunities. Additionally, during periods of deflation, they actually decrease in value as investors seek out cash and other safe-haven assets. However, over the long term, precious metals like platinum and palladium are relatively stable investments that can protect against inflation and diversify a portfolio

How Supply and Demand Affect Precious Metals During Inflation

There are several economic theories that support the idea that precious metals can help protect oneself from inflation. One of the most commonly cited is the idea that they have a limited supply. Unlike paper currency, which can be printed endlessly by central banks, there is a finite amount of gold, silver, platinum, and palladium in the world. As a result, they hold their value better than fiat currency during periods of high inflation, when the value of the paper currency may be eroded.

Additionally, they are seen as a store of value. This means that they may be less susceptible to fluctuations than other assets, such as stocks or bonds. As a result,  these are attractive options for those looking for protection against economic problems and to safeguard their wealth over the long term.

Precious Metals vs Inflation

Criticisms of Precious Metals as a Hedge Against Inflation

While precious metals are seen as a hedge against inflation, there are several criticisms of this investment strategy. 

Alternative Investments

Despite the long-standing belief that precious metals are reliable in terms of protecting one’s wealth, some critics argue that there are alternative investments that perform better during inflationary periods. Real estate, for instance, has a track record of outperforming precious metals as they are also seen as stable assets. Therefore, investors may want to consider a diversified portfolio that includes a mix of different asset classes to better mitigate risks and losses.

Limited Effectiveness

Although precious metals have a track record of performing well during high inflation, they may not always be reliable. Their performance can be hard to predict and they might even lose value during deflationary periods as their value is affected by investors’ sentiments. For instance, For instance, in the early 1980s, gold prices dropped by more than 60% after reaching their peak during the inflationary period of the late 1970s. The decline in price occurred despite the fact that inflation was still present in the economy.  Thus, this shows that investors’ sentiments play a huge role in this as the price of gold declined due to the rising popularity of stocks and bonds.

Additionally, their price can be influenced by a wide range of factors beyond inflation, such as changes in supply and demand, and market fluctuations. As a result, it can be difficult to predict their performance and returns.

Risks of Investing in Precious Metals

Finally, it is important to note that investing in precious metals carries its own set of risks. They are highly volatile, and their prices fluctuate rapidly in response to changes in market conditions. Additionally, investing in physical metals can be expensive, as there are often significant transaction costs associated with buying and selling coins and bullion. Finally, there are concerns about their liquidity, particularly during times of economic uncertainty when many may be looking to sell their holdings quickly.

Investment Strategies for Precious Metals and Inflation

While there is an ongoing debate about the effectiveness of precious metals as a hedge against inflation, there are a variety of strategies that you can employ to make the most of your assets. 


"Incorporating precious metals into a diversified investment portfolio is a key strategy for using them as a hedge against inflation. By spreading your investments across a range of asset classes, including stocks, bonds, precious metals and alternative assets, you can reduce your overall risk exposure and increase the likelihood of generating positive returns over the long term.


Economic indicators, such as rising commodity prices, increased consumer spending, and a weaker currency, can suggest that inflation is coming. Monitoring these indicators and purchasing assets at the right time can help investors maximize their returns during these periods.

Risk Management

When investing in precious metals, it's crucial to have a plan to manage risks. Some tips you can do include setting limits on your potential losses, diversifying your investments across different asset classes, and avoiding high-risk investments that could lead to big losses if the market doesn't go your way. By taking these steps, you can help protect your investments and minimize your exposure to potential losses.

Precious Metals vs Inflation

Investing in Precious Metals Through IRAs During Inflation

Individual Retirement Accounts (IRAs) provide a unique opportunity for investors to protect their portfolios against inflation through investment in precious metals. The type of IRA that allows precious metals to be added to an accountholder’s retirement portfolio is a precious metals IRA or generally called a self-directed account.

Inflation can have a negative impact on the value of traditional assets like stocks and bonds, making it essential to diversify and consider alternative investments like precious metals. 

Types of Precious Metals Allowed in IRAs

The IRS allows certain types of precious metals to be held in an IRA, including gold, silver, platinum, and palladium. These metals can be held in the form of coins or bullion, subject to certain guidelines and restrictions. To illustrate, the IRS requires that precious metals held in an IRA meet certain fineness requirements, which refers to the purity of the metal For gold, the minimum fineness is 99.5%, while for silver, platinum, and palladium, the minimum fineness is 99.9. 

Tax Advantages of a Precious Metals IRA

While diversification is a key benefit of these Individual Retirement Accounts, their tax advantages are also appealing to many. A precious metals IRA allows you to contribute with pre-tax dollars and your investments grow tax-free until you withdraw them. This means you don't have to pay taxes on any gains until you withdraw the funds, potentially allowing for more growth over time.

What You Need to Know

Here are some things you need to know before you open an account:

  • Required minimum distributions (RMDs): Once you reach age 72 (or 70 ½ if you turned 70 ½ before 2020), you'll be required to take minimum distributions from your traditional precious metals IRA each year. 
  • Annual contributions: The IRS sets annual contribution limits for precious metals IRAs. For 2023, the contribution limit is $6,500 if you're under the age of 50, and $7,500 if you're 50 or older. 
  • Custodians: Precious metals IRAs require a custodian to hold and manage the physical assets. It's important to choose a reputable custodian who specializes and is equipped to handle the unique challenges of managing these types of assets.
  • Fees: There are different fees associated with these accounts, including custodial fees, storage fees, and transaction fees. It's important to carefully review the fees before opening an account and choose a custodian with transparent and reasonable fees.

Top Precious Metals Companies for Inflation Protection

Those who are interested in adding precious metals to their portfolio as a hedge against inflation should work with a reputable dealer. We have compiled our three top companies that you may consider working with: These specialize in buying and selling precious metals, providing storage options, and offering other services related to this kind of asset. 


Augusta Precious Metals is a company that focuses on assisting people with investing in physical gold and silver bullion. It takes pride in its transparency, having been named the “Most Transparent” gold company by Investopedia and being recognized as the “Best Overall” gold IRA provider by Money magazine in 2022. With its established track record, you can trust that you are in good hands when working with this company. But its great services are a bit pricier compared to other companies, but they are worth every penny. 

#2. Goldco


Goldco specializes in aiding individuals when it comes to investing in physical precious metals with its high-quality products. It is also known for its expertise in guiding clients through the intricate rules and regulations of this industry. Additionally, it offers a Buy Back Guarantee, making them a better choice for risk-averse individuals. This guarantee assures that the company will buy your assets back at the best possible price, reducing your losses.

American Hartford Gold is a company that specializes in helping people invest in precious metals to protect against inflation and economic instability. What sets them apart is that they don’t require an initial upfront investment to access their services, making them affordable to anyone. They also provide free gold and silver guides to new members, which is perfect for beginners in the industry.

Final Thoughts

In conclusion, the relationship between precious metals and inflation is complex. While some view these assets as a hedge against economic instability, others question their effectiveness and argue for holding other alternative assets instead. Despite this, precious metals remain a popular investment choice for many individuals and institutions. As an investor, it's important to consider the historical performance and benefits that precious metal offers.

However, don’t forget the criticisms and risks associated with these. By developing a diversified strategy that incorporates precious metals and other assets, you can better protect yourself against the erosive effects of inflation and secure your financial future. Ultimately, whether or not to invest in these assets is a personal decision that depends on your financial goals, risk tolerance, and overall strategy. Generally, investing in these assets is a smart choice to protect yourself from any economic uncertainty and help you preserve your wealth.

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