UK inflation hit 3.6% in June 2025, prompting savers and investors to wonder how they can protect the value of their money from the corrosive impact of inflation.
Investing in gold could be one solution. The yellow metal has long been viewed as a hedge against inflation. It is finite: there is only so much gold in the world, besides as-yet unscalable instances of scientists achieving alchemy by turning lead into gold.
“Because the commodity has a limited supply, the value of gold often rises during longer periods of high inflation,” said Rick Kanda, managing director at The Gold Bullion Company. During these periods, “investors sometimes turn away from stocks and invest in previous metals instead”, he added.
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Inflation means investors need to get clever with their investments. Cash won’t do: over time, inflation tends to outpace the returns from cash, so if you’ve not already considered getting started in investing, now is a good time to do so.
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Inflation has been rampant over recent years, and as it has climbed, so has the gold price. But how strong is the link between gold prices and consumer prices – and can investors use gold to hedge against inflation?
How are the gold price and inflation linked?
The relationship between gold prices and inflation isn’t too clear over the long term.
The chart below plots the gold price in pound terms against the UK’s headline consumer price inflation, month-by-month, over the five years to June 2025.
While there are some periods when gold prices have climbed alongside inflation, the correlation isn’t seamless. Inflation rates have been falling since 2023, but gold prices have continued to rise. Since the start of 2024, gold prices in pounds have moved in opposite directions from the headline inflation rate.
There’s lots of reasons why the two don’t move in lock-step. For one thing, gold is traded in dollars rather than pounds, so its price has a less direct relationship to the UK economy.
There are also broader influences on the gold price than currency devaluation. The gold rally that started in 2024 was catalysed by increased gold purchases by central banks. That, clearly, has little to do with the direction of travel of gold prices.
But on a larger scale, gold tends to be a commodity that performs during periods of global inflation and instability.
“When it comes to the price of gold, inflation is extremely influential,” said Kanda. “Gold typically performs well in economic uncertainty caused by global conflicts and tariffs, and inflation is one variable where this is the same.”
How can investors use gold to hedge against inflation?
In Kanda’s view, the best ways to use gold to hedge against inflation are to buy gold coins, or gold bullion.
Coins, he says, offer a good halfway house between price and divisibility. They are also relatively liquid and can be exchanged easily at a gold dealership.
Gold coins are also exempt from capital gains tax.
But beginner gold investors should also consider gold bars, largely because manufacturing costs tend to be lower compared to coins, “resulting in lower purchase prices per gram for gold bars.
“This could help maximise your profits if you go on to sell at a later date,” adds Kanda.
Alternatively, if investors don’t want to hold physical gold, they could invest in a gold fund.
How else can investors hedge against inflation?
Gold is one way to give your investments some defence against inflation, but it is not the only one.
The stock market tends to beat inflation over the long term, though of course inflation can be bad for certain sectors and persistent inflation can dent market sentiment.
Real estate is one potential inflation hedge, given the fact that rising consumer prices tend to be captured by rising house prices.
Read more at our explainer on how to hedge against inflation.
