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After four consecutive reports left Americans frustrated, the latest inflation reading from the Bureau of Labor Statistics released on Wednesday brought some positive news: Inflation is dropping again. Inflation increased every month from October 2024 to January 2025, but it fell from 3% to 2.8% in February, giving the economy a small but important reprieve. While that’s still almost a full point above the Federal Reserve’s 2% target, it’s a step in the right direction, particularly for borrowers and investors who have seen their portfolios endure a few uneven months.
In the inflationary period of recent years, many investors have turned to gold for the protection it can provide against inflation and for the portfolio diversification it can offer when other assets react poorly to market conditions. But inflation is currently dramatically lower than its recent high of over 9% in June 2022, and it appears to be declining yet again. So, is gold still a worthwhile investment now, or should prospective investors be looking toward alternatives? That’s what we’ll break down below.
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Why a gold investment makes sense (even with inflation dropping)
While it may seem unusual to invest in gold right after a recent drop in inflation, it can still be a smart and strategic move to make now. Here’s why:
The inflation drop was minimal
Sure, inflation fell in February, but it was relatively minimal. Americans have seen these sorts of incremental drops before. Inflation was just 2.4% last September before rising in October, November, December and January. So, while a decrease is a step in the right direction, it’s only one step in a multistep process. Inflation is still sticky and can easily rise in the months to come as market conditions evolve. If inflation was closer to that 2% target, perhaps investors could feel freer to explore alternatives. But right now, a minimal inflation drop isn’t a strong enough reason to skip the portfolio protection gold can still offer.
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Gold prices keep rising
Gold has long been considered a safe-haven asset known more as an income protector versus a producer. But if you got invested in gold over the last year, however, you likely could have turned a significant profit by selling a portion (or all) of your investment. The price of gold per ounce is up around 41% from January 2024, with the precious metal selling for around $840 more than it was then. Now, at $2,918.54 per ounce, gold could soon surpass $3,000, marking a new record in a recent series of record-breaking prices. With the potential for that price to soon become out of reach, combined with a rare opportunity to possibly make a quick profit by buying and selling gold, many may still want to get invested now, even with inflation falling slightly in February.
Your portfolio still needs long-term protection
Investors should remember that inflation is cyclical, and even if Wednesday’s report showed an end to this round of inflation, it will inevitably return at some point in the future, maybe even when investors expect it least. Understanding this dynamic, it can still be beneficial for investors to add layers of long-term protection into their portfolio for when that reoccurs. Gold can provide just that. Just be strategic with how much you buy, particularly considering the elevated price. And remember that a gold investment shouldn’t usually make up more than 5% to 10% of your overall portfolio to avoid overwhelming income-producing assets like stocks and bonds.
The bottom line
A new drop in inflation is good news for the economy, even if it is minimal. But it wasn’t so substantial as to cause prospective gold investors to completely reconsider their approach, either. A minimal drop, combined with rising gold prices and an inherent need for long-term portfolio protection, means that gold can still be valuable for many investors. By getting started now, investors can lock in the protections and benefits gold provides, allowing them to better endure future economic adjustments with peace of mind and financial security.
