Is Gold Really the Best Inflation Hedge?

“Gold is the best hedge against inflation.” – Pundit

There’s not a week that goes by where we don’t hear one pundit or another promoting Gold as a valiant protector against inflation…

Image of google listing showing Gold as the best hedge against inflation

Inflation is coming, we are told, and when it does you better own Gold. Sounds wonderful in theory, but what does the evidence suggest? Let’s take a look…

Since 1975 (when Gold futures began trading), Gold has advanced 581% versus a 375% increase in the Consumer Price Index (CPI).

Graph comparing Gold and US Inflation from 1975 to 2017

Case closed, then? Buy Gold to protect against inflation?

Not necessarily. You see, Gold is not the only asset class in existence. This is what that same chart looks like if we include Investment Grade Corporate Bonds, Stocks and REITs…

Comparison between CPI, Gold, Investment grade bonds, S&P 500 Index and REITs from Jan 1975 to Oct 2017

Note: Investment Grade Bonds = BofA Merrill Lynch US Corporate Master Total Return Index, REITs = FTSE Nareit All REITs Index (Total Return), S&P 500 Index = S&P 500 Total Return Index.

Surprise: Bonds, Stocks, and REITs have all been far superior hedges against inflation than Gold. And they’ve all done so with lower volatility than Gold.

Chart showing comparison between Gold, IG Bonds, S&P 500 and REITs

In terms of consistency, Gold loses on that front as well. It has outpaced inflation in only 45% of rolling 5-year periods while Investment Grade Bonds have beaten inflation 86% of the time.

Rolling 5-year real returns of Gold and Investment Grade Corporates from 1979 to 2017

Then there’s that pesky 20-year period from January 1981 through December 2000 when U.S. inflation rose 102% while Gold declined 54%.

Image showing Gold and Inflation comparison from 1981 to 2000

That’s not to say there aren’t times when Gold outpaces inflation. There certainly are (1977 – 1980, 2001 – 2012) and given enough time, there will be again.

But it’s a myth to say that Gold has been anything close to “the best” hedge against inflation. The evidence suggests otherwise.

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This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing. All data for Gold used in this piece is from and is continuous futures data which combines multiple futures contracts to create a smooth price series. The data contained herein is derived from sources believed to be reliable but we cannot guarantee its accuracy.



Charlie Bilello is the Director of Research at Pension Partners, LLC, an investment advisor that manages mutual funds and separate accounts. He is the co-author of four award-winning research papers on market anomalies and investing. Mr. Bilello is responsible for strategy development, investment research and communicating the firm’s investment themes and portfolio positioning to clients. Prior to joining Pension Partners, he was the Managing Member of Momentum Global Advisors and previously held positions as a Credit, Equity and Hedge Fund Analyst at billion dollar alternative investment firms.

Mr. Bilello holds a J.D. and M.B.A. in Finance and Accounting from Fordham University and a B.A. in Economics from Binghamton University. Charlie holds a J.D. and M.B.A. in Finance and Accounting from Fordham University and a B.A. in Economics from Binghamton University. He is a Chartered Market Technician (CMT) and also holds the Certified Public Accountant (CPA) certificate.

In 2017, Charlie was named the StockTwits Person of the Year. He is a frequent contributor to Yahoo Finance and has been interviewed on CNBC, Bloomberg, and Fox Business.

You can follow Charlie on twitter here.

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