Is gold a hedge against inflation?
Where the claim comes from
It’s probably the most repeated line in investing. Money printers go brrr, paper loses value, gold doesn’t. You hear it every time prices rise, and gold is on my own Markets board every day for exactly that reason: people watch it as a fear gauge.
What’s actually true
The most cited study is The Golden Dilemma by Claude Erb and Campbell Harvey of Duke University. It was an NBER working paper in 2013, later published in the Financial Analysts Journal. They tested the popular stories about gold one by one.
- Over very long periods, yes. In their words, gold “may be an effective hedge if the investment horizon is measured in centuries”. This builds on Roy Jastram’s idea of a “golden constant”: in the long run, gold roughly keeps its purchasing power.
- Over practical horizons, no. “Over practical investment horizons, gold is an unreliable inflation hedge.” The journal version gives the number: a poor hedge “for horizons up to 20 years (the relevant horizon for most investors).” The real (inflation-adjusted) price of gold swings much more than inflation itself, so you can hold gold through a period of inflation and still lose purchasing power.
- Starting price matters. When the real price of gold was above its historical average, later real returns tended to be below average. That’s mean reversion. They also note a counter-force: if big emerging-market central banks build up gold holdings like developed countries’, the real price could go higher still. Hence the “dilemma”.
- Other stories fare no better. They also find gold an unreliable currency hedge, and say it may not keep its real value even during hyperinflation.
The truth
The truth: Gold is a hedge against centuries, not against next year’s inflation. Own it as insurance if you like, but don’t call it an inflation contract. It’s a volatile asset whose price depends heavily on where you bought in.