Inflation rose to 2.9% in August. Here's why a gold investment makes sense now.

The latest inflation report was released Thursday morning and, with it, the revelation that inflation increased in August. 

Now at 2.9%, the inflation rate increased from July’s 2.7% and is now almost a full percentage point higher than the Federal Reserve’s target 2% goal. That’s a major factor heading into next week, when the central bank will meet for the first time since July. While an interest rate cut is largely anticipated at the conclusion of that meeting on September 17, this latest inflation news could impact whether that cut comes in the form of 25 basis points or a larger half-percentage point.

With work still to be done, then, and the impacts of inflation unfortunately already well known for millions of Americans in recent years, investors may want to consider shifting their strategy a bit. For many, that could include putting a portion of their money into gold now. Below, we’ll explain why investing in gold with inflation rising again could make sense, regardless of where you stand in your investing journey.

Explore your top gold investing options here now.

Why a gold investment makes sense with inflation increasing

A gold investment has multiple advantages, but perhaps its most well-known and critical one right now is its ability to hedge against inflation. 

That’s because gold, unlike other assets, tends to maintain its value and often even rises in price when inflation is prevalent. This has been seen in recent years as the price of the precious metal surpassed numerous records, even while higher-than-average inflation eroded the purchasing power of the dollar. Investing a portion of your money into gold, then, can buffer these trends and protect your portfolio in a way that it wouldn’t if it were just invested in stocks and bonds.

It’s also important to remember that inflation is cyclical. While a 2.9% rate is materially lower than it was in June 2022, for example, when it hovered around 9%, inflation can and will rise again in the future, perhaps even sooner than anticipated. It makes sense, then, to keep a portion of your portfolio dedicated to fighting against the ramifications. 

That said, the recent inflation trends are not encouraging. It’s increased from 2.3% in April to almost 3% now. So, if you haven’t got invested yet, it may be beneficial to explore your options now.

Still, a rising inflation rate can and often does cause the price of gold to rise. It just surpassed a record $3,600 per ounce this week. And while there are ways to get invested below that cost, it will still be more prohibitive than it was if you had acted six months to a year ago. Further delay, then, will not only likely cause you to be priced out of the market entirely, but will leave your portfolio in a riskier position than if you had invested now.

Learn more about how gold can help in the fight against inflation here.

Be careful with how much you invest

A rising inflation rate can understandably cause investors to pivot to safe-haven assets like gold, perhaps more strongly than is generally advisable. But that would be a mistake, as it can easily crowd out other income-producing assets at the same time. Instead, most experts recommend limiting the gold portion of your portfolio to a maximum of 10%. For some investors, that threshold could be as low as 5% while others may want to be closer to 10%, depending on how long they plan to stay invested, amid other considerations. Investing more than that amount, however, is generally not the recommended approach.

The bottom line

A rise in inflation can and should be the motivation for investors to revisit their portfolios and analyze where they can improve their safeguards. Gold, thanks to its historically reliable ability to hedge against inflation, could be worth exploring now. Just be sure, if you do invest, to do so in an amount that makes sense for your portfolio. Consider speaking to a financial advisor or representative from one of the top gold investing companies to better determine your next steps.