Investing in gold: a hedge against inflation / Dr. Dahlia Ibrahim and Dr. Zuraidah Mohamed Isa

During ancient time, society equated gold with gods and kings as an honor and a way of glorification. As such, gold played a very important element in culturing elite status, power, and beauty among the people. Intrinsically, gold carries values which are sought after by everyone. Its unique density that can be easily melted, formed, and measured, gave rise to its being used as a natural trading medium, replacing the barter system. As of today, gold still is a commodity that rises in values albeit its price volatility. To prove this point, in 1969, the average closing price of gold spot stood at USD41.10 per ounce and now, the price has gone up to USD1878.34 per ounce (Gold prices-100 year historical chart, n.d.). A rise of over 4470 percent in a span of 54 years yielded to an average of 82.77 percent rise in value per year (Gold prices-100 year historical chart, n.d). Due to gold’s soaring value, it is a popular talk among investors that gold is the answer to hedging against inflation. This brief article will share why gold is thought to be one mechanism in the combat against today’s rising inflation. According to Maxwell (2022), many people consider gold to be a hedge against inflation since its price tends to rise against inflation. He further agreed that gold can be used to stabilize one’s investment portfolio. For thousand years, gold is considered a valuable commodity. It is an easy buy and whoever owns gold need not worry of the dividend’s payments and earnings report because the main purpose of keeping gold is to store value for its owners for long term. As such, gold becomes an attraction during inflation, and concerns about an expected recession may make this a good time to invest in gold. Looking at Malaysia as an example, this country had witnessed fluctuations of the consumer price inflation rate between -1.1% and 17.3% over the past 61 years, where an inflation rate was calculated at 2.5% in 2021. At the beginning of 2022, a product that cost MYR100 in 1960 has risen to MYR577.83, with a hike of 477.83 percent (Inflation rates in Malaysia, n.d.). In addition, Bank Negara Malaysia had increased its overnight interest rate to 3.0% in January 2023, and is expected to rise again (Abdul Jamal, 2023). Despite this, it does not keep up with the rate of inflation. Rothan (2020) opined that commodities like gold may outperform some conventional financial assets when the inflation rate exceeds the rate of increases in interest rates, as is the case right now. People look to gold and other safe and stable investments when the value of a currency drops as they try to protect themselves from inflation. As a matter of fact, World Gold Council (2020) pointed out that gold plays an important role as a tactical inflation hedge and longterm strategic asset.