Investing in digital gold to beat inflation

Friday, July 29, 2022

In times of rising inflation rates, many people are looking for ways to protect their capital. Could digital gold be a good asset to have in the portfolio? And what distinguishes this asset from physical gold? Read on to learn more about the hedging properties of gold and digital gold as a wise investment in inflationary times.

Since inflation has remained low for many years there’s been no chance to see if digital gold will provide the same protections as physical gold against the ravages of rising prices. But now, with consumer and commodity prices rising at a pace not seen in decades, we can take a look at digital gold to see if it also acts as an inflationary hedge. 


Will gold protect your capital from inflation?

Inflation is usually considered an enemy of investors. It erodes the value of currencies and lowers the purchasing power of money. A typical response for investors is to buy gold, which has historically proven a great hedge against inflation. However, gold's effectiveness in protecting against rising prices has its limits.

While there are many reasons to believe gold is a good hedge, its performance historically has not always been as good as many believe. The gold price performance during inflationary periods has actually been mixed. However, gold is often considered the most stable of all precious metals, and it's often done pretty well when prices are on the rise – especially recently. It has even outperformed silver, platinum, and palladium.

Let's take a look at how the value of gold changes with supply, demand, and market sentiment.

The value of gold

The first factor that affects the price of gold is supply: If there are more buyers than there is gold available, then the price will go up. The second factor is demand: If no one is interested in buying, then the price will go down. But even though these two factors affect how much you pay for your piece of bling, they don't necessarily determine what you'll be able to get when you sell it later down the road – which brings us to our third factor: Market sentiment!

Market sentiment refers to whether people think something will rise or fall in value over time – and market sentiment is what can drive prices up to insane levels when everyone thinks something will rise in value over time (like when everyone thinks housing prices are going up). Market sentiment also drives prices down when everyone thinks something will fall in value over time (like when everyone thinks housing prices are going down).

  • There's no guarantee that if there is a spike in inflation, gold will generate above-average returns. There are other factors often at play.
  • Gold can be a good hedge, but it is not necessarily the best. Gold's value is sometimes more volatile than other assets, and it often takes longer to recover from significant economic downturns.
  • Gold's price often moves inversely to the value of the U.S. dollar. As the value of the U.S. dollar moves lower, gold tends to appreciate as it becomes cheaper in other currencies. Further, demand tends to increase at lower prices. It's also worth noting that gold has performed well in recent years because of its relatively low correlation with other asset classes such as stocks and bonds. This means that when stocks and bonds are experiencing poor performance, gold tends to reverse those same lows or highs.

Overall, it is clear that gold can be an inflationary hedge, but at times other factors will play a role and keep gold from shining as brightly as it might otherwise.



Is investing in digital gold similar to physical gold?

When it comes to long-term investing, gold has always been a preferred choice for savers. This can be attributed to the fact that gold has been a store of value for thousands of years. Some would say it is the conservative investor's preferred asset class. Gold is the go-to for people who want to protect their savings. But what does that mean?

Cryptocurrencies backed by gold bars can serve as a hedge against inflation because, like physical gold, they maintain their purchasing power during times of rising prices. When people are afraid of their currency losing value, they want to stick to investments that hold their purchasing power. And what better investment  than one tied to gold? Digital gold also benefits from portability, easy storage, and liquidity, making it superior in some ways to physical gold.

The combination of ‘digital’ and ‘gold’ can help keep your assets secure. Not every cryptocurrency can serve as a hedge against inflation, but those backed by gold bars have proven themselves time and time again as stable investments with staying power.

Gold is different. It doesn't have an intrinsic value like most commodities do (such as oil or wheat). Instead, it's valued based on its scarcity and durability. So when you buy gold, what are you really buying? You're buying protection against inflation – because gold has been proven over time to retain its value. Additionally, during the Great Recession, gold outperformed hedge funds, real estate, and some commodities.

What differentiates digital gold?

A cryptocurrency is a digital form of money that uses cryptography and blockchain technology to validate transactions between two parties on a peer-to-peer basis. To illustrate, Pax Gold (PAXG) is digital gold, backed by physical gold, and offers all the advantages of traditional investment in gold, plus all the advantages of blockchain assets.

PAXG is a tokenized version of gold that has been minted on the blockchain. It's backed by real gold reserves held by Paxos, a New York-based company. Each PAXG token represents one ounce of a London Good Delivery gold bar held in Brink’s gold vaults. It also offers 100% transparency – meaning you can see where it's stored and how much there is at all times without an issue.

The genius in PAXG lies in its simplicity. It's built on an existing system that works, so there are no barriers to implementation and no need for expensive infrastructure or maintenance costs. 

Paxos has developed PAXG as a token on the Ethereum blockchain, so unlike physical gold it's easily movable and tradeable anywhere in the world, at any time. You don't need to worry about storage or insurance. All your assets are backed by physical bullion held in secure vaults.

So is investing in digital gold similar to physical gold? For many, it is even better. As we move towards a cashless and contactless world, digital gold is a great way to add a digital asset to your portfolio that offers all the advantages of a traditional investment in physical gold. Digital gold is much easier to handle than physical gold, which explains why it's so valuable in the first place. It's not just a store of value – it's also a currency that can be used for transactions, making it much more flexible than physical gold.

Where to buy digital gold?

If you want to buy digital gold, you can do so on the SMART VALOR platform as PAXG. The purchase is very convenient because you do not need banks or other institutions to take care of the storage and protection of your gold. Instead, you can buy or trade PAXG in any amount at any time all by yourself and store it in your crypto wallet.

Is Pax Gold safe?

Pax Gold is a gold-backed digital asset for users to self-manage, protect, and preserve their wealth. Pax Gold tokens provide access to a new asset class, with greater flexibility and portability than traditional gold investments. No need to keep your capital in the form of gold coins or bars and no need to worry about where or how to keep them safe.

Also, Pax Gold is backed by one fine troy ounce of a 400 oz London Good Delivery gold bar. And it is the only gold-backed cryptocurrency with its own vaults. The vaults at Brink’s are only accessible to Pax Gold holders who have been verified through KYC/AML and are part of the Pax Gold ecosystem. PAXG is built on the Ethereum blockchain, which is one of the most secure platforms for storing data and transactions. No one can manipulate the data – they are immutable and unchangeable.


If you are looking to invest in PAX Gold the easy way, SMART VALOR is the right place. We offer PAXG on our platform in six trading pairs – besides EUR, CHF, GBP and USD, also Bitcoin (BTC) and Tether (USDT). Log in to your account and optimise your investment portfolio now.