Inflation hedging is an investment strategy that protects the real value of capital against the erosion of purchasing power caused by rising consumer prices. It allocates wealth to assets whose nominal value tends to rise with or outpace inflation, such as commodities, real estate, inflation-linked bonds, and scarce stores of value. Both gold and Bitcoin are frequently cited as inflation hedges because their supply is constrained relative to fiat currency issuance.
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- The effectiveness of any hedge depends on its supply elasticity, correlation with the inflation regime, and liquidity. Scarce assets with fixed or predictable issuance schedules are favoured precisely because they cannot be inflated by policy.