Personal Wealth Management / Market Analysis

Nope, Today’s Inflation Doesn’t Call for Gold

True inflation hedges don’t fall when inflation accelerates.

In recent weeks, from Internet banner ads to television commercials to radio and podcast spots, we have heard a clarion call: Put your IRA in gold now to protect against inflation! We are told gold is the only insurance policy against a devaluing dollar. That converting your IRA or 401(k) to store physical gold is wise, low-cost and risk-free—seemingly ignoring that the courts have cracked down severely on the process, costing some people hundreds of thousands of dollars.[i] Aside from the potential costs, low liquidity and other fine points, we see a giant problem with this alleged inflation hedge: It just doesn’t work.

As we now know, courtesy of December’s CPI report, US consumer prices rose 7% last year.[ii] For something to work as an inflation hedge, it would have to rise by more than 7%. Global stocks easily fit the bill, returning 21.8% including reinvested dividends. If you are keeping score, that is three times the inflation rate, suggesting real (inflation-adjusted) returns were fine. Gold? Well, gold fell -4.3%. Yes, as the inflation rate hit a 40-year high, gold lost value in absolute terms.

Exhibit 1: Gold and Global Stocks in 2021


Source: FactSet, as of 1/14/2022. MSCI World Index return with net dividends and gold price (dollars per troy ounce), 12/31/2020 – 12/31/2021. Indexed to 100 at 12/31/2020.

Now, we aren’t arguing this is destined to repeat in 2022. We also happen to think inflation is likely to moderate later this year. That isn’t a political or ideological statement, just an opinion based on our analysis of inflation’s causes and how the calculation works. But let us be clear: Anyone selling you gold as an inflation hedge is selling you snake oil.[iii] A reliable inflation hedge should be able to prove its power on a repeatable basis, especially at times when everyone fears inflation—as they did last year. If you can’t count on gold in that environment, when can you?

[i] “A Couple Stored IRA Gold at Home. They Owe the IRS More Than $300,000.” Laura Saunders, The Wall Street Journal, 12/3/2021.

[ii] Source: BLS, as of 1/14/2022.

[iii] And if they are pitching that you should do it in a self-directed IRA, see the article in footnote i and be exceedingly cautious.

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