Any regular reader of this blog will already be aware that inflation is a prime concern discussed regularly here. After all, if you work hard for your money you deserve to see some form of reward in terms of purchasing power. Inflation ruins this, and renders your money increasingly more worthless (and in the case of hyperinflation, total destruction of your purchasing power can come overnight)
Gold acts as inflation hedge, which also goes a long way to explain why we are so in favor of the yellow metal. Because it cannot just be created out of thin air; because there is a finite supply, gold is always going to retain some form of intrinsic value. The same cannot be said for paper/fiat currency, which can practically be generated in unlimited quantities.
Whilst gold is not guaranteed to perform well during inflationary periods, the general consensus (and historical precedent) tends to suggest that it does hold purchasing power and increasing in value when pressured by inflation. However, inflation is not the sole cause of gold price increases, and this must be kept in mind.
At the end of the day though, gold does serve as one of the most potent inflation hedges available. It has its foibles, but has proven itself a time trusted and tested form of currency over thousands of years. Unless someone with the Midas touch happens to pop up and start turning everything to gold, it is always going to retain an intrinsic value of some degree.
This is, of course, a very complex and difficult issue to understand completely. The best way to get your head around gold and hedging against inflation is to read further into detail on the subject. Golden Bull, recommended by the Gold Standard Institute, is the ideal way to learn more about how gold works to protect your income from inflation.