scroll

Gold as a “hedge”.

Advanced Search

Our Q&As are emailed in our Saturday Morning Report, find the answer to this question below.

Ask a question

The Latest Q&A

Question asked 17/05/2025

Gold as a “hedge”.

Hi You commented in an answer to a question last week that " Central banks are buying gold as an alternative to the $US as a hedge against geopolitical risk, inflation, and currency instability". How does this hedge function work? Is it simply that gold can always be sold quickly and easily for cash if the stuff hits the fan with inflation, geopolitical issues etc and the seller of the gold wants to get cash quickly. The price of gold doesn't always move in a straight line so it's not like you can rely on x ounces of gold being worth $x at a particular time in the future, and it doesn't pay any interest either so the holder can't guarantee that they'll make money simply by buying and holding. Thanks, Carl

Answer

Hi Carl,

Central banks play the “long game” hence they are not so much fixated on month to month moves, they are looking strategically years ahead. Central banks have been accumulating gold over the last few years on concerns that the Greenback might ultimately lose its position as the global reserve currency. In theory it works as follow:

Gold is typically priced in US dollars. When the US dollar weakens, gold becomes cheaper for holders of other currencies, increasing demand and pushing up the gold price.

Hence their money is insulated against a depreciating $US plus if/when the $US depreciates rapidly gold gets the added bonus of a haven bid.

Conversely gold is vulnerable to inflation because infltaion ultimately drives up interest rates, weighing non-yielding assets like gold – people often believe gold is a hedge against inflation but that can be a two-edged sword.

chart

Gold ($US/oz)

LAST UPDATED 16/05/2025 14:13

Latest Reports

Weekend report 12/07/2025

Weekend Q&A: Tariffs are back, but equities are still flaunting new highs

The ASX200 slipped 0.3% last week after dancing around the psychological 8600 level almost daily. While the index traded in a tight range, it was a very different story on the stock and sector level, with utilities surging +3.4% while real estate fell -3.2%, two theoretically rate-sensitive sectors moving in opposite directions. However, most of the action unfolded in the resources with a strong advance by iron ore in the back end of the week, helping heavyweight BHP Group (BHP) bounce over $2 to test its March high.

Afternoon report 11/07/2025

The Match Out: ASX dips, Rare Earth stocks roar, as U.S Govt buys in

The ASX 200 once again knocked its head on the 8600 level today, with a strong open sold into as US Futures tracked lower during our time zone after news emerged of a potential 35% tariff on imports from Canada to the US.