Market Analysis

Shouldn’t Gold Be Shining?

Despite inflation worsening amid a cacophony of fearful headlines, purported everything-hedge gold couldn’t sustain an early-year rally.

Inflation hitting successive 40-plus-year highs to finish June at 9.1% y/y.[i] A bear market. Sliding bonds. Recession worries. War in Ukraine—and fear of war spreading. If ever there was a backdrop longstanding myths say should favor gold, this difficult environment is it. The long-rumored “safe haven” is supposed to provide protection from rising prices, falling stocks, recession and chaos generally. But let us explore how those theories look now, amid an environment allegedly super favorable to the shiny yellow metal.

In the year’s first month, when world stocks fell -5.2%, gold traded largely sideways—falling just -0.6%.[ii] In February, amid heightening war tensions—that ultimately culminated in Russian President Vladimir Putin’s vile invasion of Ukraine on February 24—gold’s gains accelerated. On March 8, while war and inflation fears raged, gold hit 12.9% on the year alongside bigger gains in less flashy commodities like industrial metals and grains.[iii] At the time, world stocks were down -13.2%, making the precious hedge look like it was working.[iv]

By that time, commentary dotted the financial press touting gold and commodities as a hedge—a surefire investment for these times. ETFs launched, offering retail investors exposure. As Bloomberg reported, Bank of America’s April Global Fund Manager Survey—published early that month—showed respondents were “… now the most net overweight ever for commodities.”[v]

In investing, it is very often an error to follow the herd and make decisions on widely known information. By the time the plethora of “How to Invest for a <<Insert Topic Here>>” articles emerge, it is usually too late—assuming the theory underpinning those arguments is even correct.

So it was this March, it seems. You see, March 8 has thus far proven to be gold’s high-water mark this year. From then through July 13, it has fallen -15.4%, nearly doubling global stocks’ -8.4%.[vi] This isn’t to pick on gold alone. Commodities generally are down. The S&P GSCI Industrial Metals Index and Grains Index are off -33.6% and -25.9%, respectively.[vii] It is, rather, to point out that there isn’t anything unique about gold. It isn’t magic—just a commodity, full stop.

Consider all that has transpired between March 8 and now. On inflation, UK CPI releases have shown prices accelerating in all four reported months in that span, from 6.2% y/y in February to 9.1% in May. In the US, CPI sped from 7.9% y/y in February to 9.1% in June. Actually, inflation gauges in pretty much every major developed nation are up markedly over this span, at high rates, too. If gold is an effective inflation hedge, it should be up. It isn’t. None of this is really new, either. As we have written here before, gold’s inflation-hedge status is mostly mythical..

Here again, we point out a simple reality: Gold is more volatile than stocks, it has no yield, and its long-term returns are lower than stocks. You can say the same thing of most commodities. This year is also proving gold isn’t negatively correlated to stocks and bonds and, again, it isn’t proving to be much of an inflation hedge. In our view, the case for gold is flimsy—and this very difficult year is, unfortunately, proving the point.


[i] Source: US Bureau of Labor Statistics, as of 7/14/2022.

[ii] Source: FactSet, as of 7/14/2022. MSCI World Index return with net dividends and gold return, 12/31/2021 – 1/31/2022.

[iii] Ibid. Gold, S&P GSCI Industrial Metals and S&P GSCI Grains Index returns, 12/31/2021 – 3/8/2022.

[iv] Ibid. MSCI World Index return with net dividends, 12/31/2021 – 3/8/2022.

[v] “BofA Says Fund Managers Most Gloomy on Record on Recession Woes,” Nikos Chrysoloras, Bloomberg, 4/12/2022.

[vi] Source: FactSet, as of 7/14/2022. Gold price return and MSCI World Index return with net dividends, 3/8/2022 – 7/13/2022.

[vii] Ibid.

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