Inflation measures the level of price rise over a given time duration. Investors may find themselves in a tight spot when prices are rising as inflation would eat away at the returns offered by the investment. The nominal returns offered by an investment might be increasing. However, the real returns would be lower due to inflation.
Investors must focus on instruments that can offer high growth other than simple income. Fixed income assets are generally the worst-hit assets during inflation. If the returns are growing at par or above the rising prices, investors can enjoy some level of security against the price rise. Gold is considered a hedge against inflation. Gold has been used as a medium of exchange in old times, and it continues to be an asset of interest due to its intrinsic value.
Unlike fiat money, gold holds an inherent value that makes it attractive to investors. Investing in gold not just means buying a physical asset. Gold derivatives are also a standard method through which some level hedging can be done against rising prices. Individuals can buy shares and bonds in gold. Many of these commodities are seen as an indicator of rising prices.
An important factor to consider in commodity trading is the impact of underlying demand and supply of the commodity. Factors of demand and supply make commodity prices as well as the prices of their derivatives volatile. Dividend paying stocks can be a refuge for investors in stressful times. If investors are losing out on their investment gains due to inflation, dividend stocks give them an opportunity to lock in additional income.