Gold & Inflation: The Myth
Updated Feb 2023
Proof that being a gold bug pays poorly. The argument that Gold is an excellent hedge against inflation is faulty. You have to know when to buy and when to sell. If you hold it forever, it means that emotions are talking and logic is walking. The graph below indicates that conservative investors usually get what they seek; steady but insignificant gains.
Inflation has risen roughly 200% since the 1990s, and Gold, supposedly the best hedge against inflation, has surged approximately 4.5 times more, definitely outpacing inflation. Still, bonds fared even better, increasing by almost 580%. Knocking the Gold is the best hedge against inflation argument right into the toilet. When it comes to Gold and inflation, many investments out sizzle gold.
But wait for stocks kicked Gold to the curb and generated returns of almost 2000%. As we are in the QE forever era, the argument for Dow 51K and beyond is gaining traction. If we take a longer-term view and, based on the current pattern, one could begin to build a case for Dow 99K. However, that is a story for another day. One needs to focus on the fact that sharp market corrections are buying opportunities. So-called crash-like events should be considered a screaming buy until the trend changes.
Gold & Inflation: Research Speaks
- “Gold is not always an inflation hedge” by Steve Goldberg, MarketWatch (2015) – https://www.marketwatch.com/story/gold-is-not-always-an-inflation-hedge-2015-01-09
- “Gold as an Inflation Hedge: Lessons from the Past and Implications for the Future” by Dirk Baur and Brian Lucey, The Financial Review (2010) – https://onlinelibrary.wiley.com/doi/full/10.1111/j.1540-6288.2010.00242.x
- “Why Gold Is Not a Reliable Inflation Hedge” by Adam Hamilton, Seeking Alpha (2013) – https://seekingalpha.com/article/1319831-why-gold-is-not-a-reliable-inflation-hedge
- “The truth about gold as an inflation hedge” by Barry Ritholtz, The Washington Post (2013) – https://www.washingtonpost.com/business/the-truth-about-gold-as-an-inflation-hedge/2013/04/19/5d5b7baa-a8d8-11e2-a8e2-5b98cb59187f_story.html
- “Why Gold Is Not Always an Inflation Hedge” by Jeff Desjardins, Visual Capitalist (2019) – https://www.visualcapitalist.com/why-gold-is-not-always-an-inflation-hedge/
- “Gold: An Inflation Hedge, or Just a Hedge?” by Michael A. Gayed, MarketWatch (2012) – https://www.marketwatch.com/story/gold-an-inflation-hedge-or-just-a-hedge-2012-04-12
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