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Gold is generally considered a hedge against inflation. https://www.forbes.com/advisor/investing/gold-inflation-hedge/ https://www.forbes.com/advisor/investing

Gold is generally considered a hedge against inflation. https://www.forbes.com/advisor/investing/gold-inflation-hedge/ https://www.forbes.com/advisor/investing/gold-inflation-hedg...

ajross 3y ago
And by bidding it up at the end of a period of inflation, those trying to hedge burned themselves. Same thing is happening now: inflation is back down to baseline, but people think it's high because prices are higher than they were (brains have trouble with reasoning based on derivatives of functions). Basically gold is, as it always has been, a sucker's bet. All the people buying it now are probably going to lose money.
- ortusdux 3y ago
  Yep. The key is to buy it 6 months ago, and then do everything you can to get others to continue buying in.
- AnimalMuppet 3y ago
  1979/80 wasn't the end of the inflation. Especially 1979. But even later... there's a lag time in peoples' minds and, especially, emotions. When inflation has gone up to 10%, it's a huge surprise, but your mind is still back on 6% or 8%. When it comes back down to 10%, your mind is still on the 14% it was, not on the 6% or 8% it's (maybe) headed back to.
- ta_billlegrand 3y ago
  Since Nixon ended the convertibility of the US dollar to gold (at $35/oz) in 1971, the price of gold in dollars has increased at about 8% a year. The S&P 500 over that time frame has returned a bit over 10% a year. If gold has been a sucker's bet, stocks have been barely less of one. Of course, the correlation between gold prices and stock prices is quite low, so a blended portfolio (occasionally rebalanced) would have outperformed a 100% allocation to either with less volatility.
  - ajross 3y ago
    You're probably being downvoted unfairly because of the reference to the fiat currency conspiracism. But to treat your actual point: That's an extremely cherry-picked date. 1970 was the bottom a deep trough in gold prices. If you look just a few years in either direction, it was 50% higher. You would have had to aim your investment with shocking precision to even get close to stocks in terms of returns. If you look back to 1940, you'll see that gold has returned about 1.2% in real value, which is significantly less than bank interest. Gold has been losing money, on balance, in the power-war world. See: https://www.macrotrends.net/1333/historical-gold-prices-100-year-chart https://www.macrotrends.net/1333/historical-gold-prices-100-... It's a volatile asset, so you can always play games with dates to make it look like a good thing. But it's not. It's a sucker's bet, and I stand by that. Buy a mutual fund.
panarky 3y ago
Yes, but that doesn't explain why didn't gold soar when inflation was far higher in the first half of 2022% And it doesn't explain why gold is suddenly hitting all-time-highs right now, precisely when inflation is nearly back to pre-pandemic levels.
mynameishere 3y ago
There are many hedges against inflation. Gold is more akin to a hedge against catastrophe. Unlike commodities or industrial shares, gold can be hidden and transported personally.
- anonymous_sorry 3y ago
  Is it these sort of buyers that have a major influence on the price though? (I don't know the answer.) If you buy a large amount of gold on an exchange the physical gold often stays in the exact same vault, and someone just updates an ownership record.
  - mikhailfranco 3y ago
    Always buy and own gold (in decreasing priority): (1) Physically in your custody in a secure place. Not always possible, e.g. digital nomad. (2) Physical at a bullion dealer in a westernized country with a vaulting service that records your private ownership, so it is owned by you as property, in their custody, with a daily audit with your name on it, not as a financial liability of the vaulting company - i.e. outside the banking system, and not in a safe-deposit vault that restricts liability for precious metals. (3) A financial instrument in a westernized country tied to audited physical holdings, e.g. Sprott Physical Gold, not GLD ETF, which is just manipulated paper fiction. No other option - except perhaps some gold jewelry, which is not really secure, but can easily be worn when crossing borders (usually up to $10k without declaration, and above $10k is often easy, except at times of national panic/emergency/reset, whether real, imagined or fabricated to steal your gold). Also be very careful about T&Cs for funding (2) & (3) through a joint account, even if your gold account is in your name only. If you get divorced, you may find that your ex owns half your gold, independent of any settlement, and ignoring any routing of the money from your pre-marriage wealth into your single-named gold account.
nradov 3y ago
That is more of a myth than a reality. If you chart gold investment returns along with consumer price inflation since 1971 (when the US fully left the gold standard) it turns out that gold isn't a great inflation hedge. Other asset classes are probably a better choice for most investors.

Gold is generally considered a hedge against inflation. https://www.forbes.com/advisor/investing/gold-inflation-hedge/ https://www.forbes.com/advisor/investing/gold-inflation-hedg...

ajross 3y ago

And by bidding it up at the end of a period of inflation, those trying to hedge burned themselves. Same thing is happening now: inflation is back down to baseline, but people think it's high because prices are higher than they were (brains have trouble with reasoning based on derivatives of functions). Basically gold is, as it always has been, a sucker's bet. All the people buying it now are probably going to lose money.

ortusdux 3y ago
Yep. The key is to buy it 6 months ago, and then do everything you can to get others to continue buying in.
AnimalMuppet 3y ago
1979/80 wasn't the end of the inflation. Especially 1979. But even later... there's a lag time in peoples' minds and, especially, emotions. When inflation has gone up to 10%, it's a huge surprise, but your mind is still back on 6% or 8%. When it comes back down to 10%, your mind is still on the 14% it was, not on the 6% or 8% it's (maybe) headed back to.
ta_billlegrand 3y ago
Since Nixon ended the convertibility of the US dollar to gold (at $35/oz) in 1971, the price of gold in dollars has increased at about 8% a year. The S&P 500 over that time frame has returned a bit over 10% a year. If gold has been a sucker's bet, stocks have been barely less of one. Of course, the correlation between gold prices and stock prices is quite low, so a blended portfolio (occasionally rebalanced) would have outperformed a 100% allocation to either with less volatility.
- ajross 3y ago
  You're probably being downvoted unfairly because of the reference to the fiat currency conspiracism. But to treat your actual point: That's an extremely cherry-picked date. 1970 was the bottom a deep trough in gold prices. If you look just a few years in either direction, it was 50% higher. You would have had to aim your investment with shocking precision to even get close to stocks in terms of returns. If you look back to 1940, you'll see that gold has returned about 1.2% in real value, which is significantly less than bank interest. Gold has been losing money, on balance, in the power-war world. See: https://www.macrotrends.net/1333/historical-gold-prices-100-year-chart https://www.macrotrends.net/1333/historical-gold-prices-100-... It's a volatile asset, so you can always play games with dates to make it look like a good thing. But it's not. It's a sucker's bet, and I stand by that. Buy a mutual fund.

panarky 3y ago

Yes, but that doesn't explain why didn't gold soar when inflation was far higher in the first half of 2022% And it doesn't explain why gold is suddenly hitting all-time-highs right now, precisely when inflation is nearly back to pre-pandemic levels.

mynameishere 3y ago

There are many hedges against inflation. Gold is more akin to a hedge against catastrophe. Unlike commodities or industrial shares, gold can be hidden and transported personally.

anonymous_sorry 3y ago
Is it these sort of buyers that have a major influence on the price though? (I don't know the answer.) If you buy a large amount of gold on an exchange the physical gold often stays in the exact same vault, and someone just updates an ownership record.
- mikhailfranco 3y ago
  Always buy and own gold (in decreasing priority): (1) Physically in your custody in a secure place. Not always possible, e.g. digital nomad. (2) Physical at a bullion dealer in a westernized country with a vaulting service that records your private ownership, so it is owned by you as property, in their custody, with a daily audit with your name on it, not as a financial liability of the vaulting company - i.e. outside the banking system, and not in a safe-deposit vault that restricts liability for precious metals. (3) A financial instrument in a westernized country tied to audited physical holdings, e.g. Sprott Physical Gold, not GLD ETF, which is just manipulated paper fiction. No other option - except perhaps some gold jewelry, which is not really secure, but can easily be worn when crossing borders (usually up to $10k without declaration, and above $10k is often easy, except at times of national panic/emergency/reset, whether real, imagined or fabricated to steal your gold). Also be very careful about T&Cs for funding (2) & (3) through a joint account, even if your gold account is in your name only. If you get divorced, you may find that your ex owns half your gold, independent of any settlement, and ignoring any routing of the money from your pre-marriage wealth into your single-named gold account.

nradov 3y ago

That is more of a myth than a reality. If you chart gold investment returns along with consumer price inflation since 1971 (when the US fully left the gold standard) it turns out that gold isn't a great inflation hedge. Other asset classes are probably a better choice for most investors.