Gold. What’s wrong with it? From spiking inflation, falling real interest rates, and massive money printing, it seems logical that gold, a touted inflation hedge, should be rising. Yet, so far this year, gold has done little.
So, what’s wrong with this precious metal? Absolutely, nothing.
Is Gold Really An Inflation Hedge
One of the primary arguments for owning precious metals, particularly physical gold, is its effective hedge for inflation. However, is that still the case today?
The chart below shows the non-inflation-adjusted price and key events throughout history.
The U.S. being on a “gold standard” is a crucial consideration of the argument of gold being an effective hedge against inflation.
“The gold standard is a monetary system where a country’s currency or paper money has a value directly linked to gold. With the gold standard, countries agreed to convert paper money into a fixed amount of gold. A country that uses the gold standard sets a fixed price for gold and buys and sells gold at that price. That fixed price is used to determine the value of the currency. For example, if the U.S. sets the price of gold at $500 an ounce, the value of the dollar would be 1/500th of an ounce of gold.” – Investopedia
As you can see in the chart above, prices remained stable until the point that President Nixon ended the gold standard in the U.S. However, for this analysis, the question is whether the golden metal is, or was, a good hedge against inflation?