By Skyline On Tuesday, May 09 th, 2017 · In ,

FIELD NOTE: MAY 2017

ALL THAT GLITTERS: IS GOLD REALLY AN INFLATION HEDGE?

During times of political and economic uncertainty, many investors add gold to their portfolios, citing its supposed inflation-hedging abilities. However, the data tells a different story.

Real Growth of a Dollar

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For any asset to hedge against inflation, its return must consistently equal or surpass the rate of inflation. However, gold has tracked to inflation poorly. For instance, between 1980 and 2000, a dollar invested in gold lost 75% of its purchasing power.

Contrast gold’s performance to reasonable alternatives (like those below), which all have consistently outpaced inflation with significantly less volatility.

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As you can see in the graphic above, asset classes like bonds and TIPS surpass gold’s annual returns at a fraction of the risk.

If you need a hedge against inflation, ignore the hype about gold. Compared to higher-performing, lower-volatility securities like bonds and TIPS, gold loses its luster.

To read Warren Buffet's perspective on gold, CLICK HERE.

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