Can we stick a fork in the idea that Gold and Crypto are a hedge against inflation?

So one of the big selling points of gold and crypto currency was that it was a way to get away from the danger of inflation of fiat currency since they are backed by actual real world stuff or in the case of crypto proof of work waste, rather than blind faith in America.

So now that the US is in a period of substantial inflation supposedly due to fiscal irresponsibility we should see these alternatives proving their worth and having their price go up as the “real” value of the dollar dwindles. Instead, over the past year, gold is down 8.4%, and BitCoin is down a whopping 68%.

If these hedges don’t work when we have the highest inflation rates in decades, why is there any reason to believe that they ever would?

Gold is simply a commodity, much like Pork Bellies. It is, however, subject to perhaps even more market speculation. It is not some magic thing.

True, if you actually get gold coins, they are kinda cool.

The gold crowd has been saying for decades “Gold never changes its value” and “Gold always increases its value”. I don’t think any logical argument is going to sway them.

It’s true at a large scale. It’s a hedge against fiat currencies becoming hyperinflated, not from just having run-of-the-mill high inflation by western standards. If you ask someone from Venezuela or Zimbabwe, I’m sure they’ll absolutely agree that crypto and gold are good hedges against the kind of inflation they’ve experienced.

Although if the US dollar goes through that kind of hyperinflation I think investing in canned goods, ammunition and bottle caps might be a better investment than gold.

Gold performed very well during the great inflation of the late '70s to early '80s, and the great recession of 2008-2012, but otherwise so far as I can tell it has been drifting down rather steadily. I mean, think about it… the supply of gold increases year over year, meanwhile used gold is likely to be recycled or otherwise repurposed rather than wasted.


Indeed! When I got married I had no intention of wearing a ring. I’ve never been into jewelry. I bought a cheap gold band for the ceremony and spent my money on my wife’s engagement and wedding rings. I took the band off after the ceremony and it sat in my dresser drawer.

A year later the price of gold had climbed considerably. I sold my wedding ring as scrap. When I told my wife how much $$ I’d gotten for my ring I expected her to be thrilled. Plot twist: she was not!

I remember someone here who regularly trotted out the argument that gold never changes in value. As an example, she said something about how in the nineteenth century, you could buy a suit of clothes for a gold coin and you still can today.

Isn’t this entirely due to abandoning the Gold Standard in the early to mid 70s? Gold prices were being artificially suppressed before that.

I thought the gold standard was abandoned domestically under FDR, in the '30s. Nixon stopped changing out foreign held US dollars for gold.


That’s quite likely true, but I might also suggest that for some people, the current way the government is being run gives them very little faith that the US won’t succumb to hyperinflation. They aren’t really that wrong that it’s a risk that exists, though they are probably considering such a risk more than it deserves to be.

I keep 3% of my portfolio invested in a gold mining mutual fund, but the way things are going lately I might drop it and mix that money back into the general stock allocation, because I’m not all that happy with how much the performance of it seems to have fallen in line with the stock market. It’s supposed to be uncorrelated, that’s the entire point of the investment, and yet it’s perhaps OVERcorrelated (Beta greater than 1).

That’s true, the US technically wasn’t on the gold standard then. Nevertheless, the Bretton Woods system meant the price of gold was $35 an ounce for a long time. I wasn’t entirely accurate as to the reason there, but the result is the same.

Well, the way you wrote it seemed backward to me. I don’t think of the value of gold being artificially suppressed under the Bretton Woods system - I think of it as the value of everything else being artificially inflated or suppressed to match the booms and busts in the gold market.

Speaking of which, if I can turn back to the premise of the thread -

The real problem, and the reason you are right to put a fork in this argument, is that gold and crypto are backed by blind faith just as much as fiat currency. The value of gold and crypto currency is tied to fiat currency, because we define value in terms of fiat currency. When you say “gold is down 8.4%” you mean the value of an ounce of gold in what I assume is USD*.

A gold bug would say to look at real value. If you define value as USD you ignore those hypothetical tailors mentioned upthread, the ones that will make you a new suit for two ounces of gold and have been offering such a deal for 100+ years. The reason they are fringe is simply because accepting gold as payment is fringe. Same with cryptocurrency. Good luck finding that hypothetical tailor in real life, much less a grocery store near you - taxes and wages must be paid in USD.

As far as the rest of us go (i.e. non gold bugs), the value of gold or crypto is defined in USD or other national currency. When our economies face inflation, you tend to see a surge in demand for gold. This surge is not accompanied by a sudden surge in supply, so the price of gold (in USD, etc) goes up significantly. What causes the surge? People who think gold is a good hedge against inflation, or any other perceived existential threat to the economy.

Nothing but blind faith sustains the cycle.


Nobody has ever claimed that gold has a perfect correlation against the dollar. The actual claim is that over long periods of time–several decades at least, if not a few centuries–gold is a stable protector of value.

Gold and crypto are not the same. Gold is a stable (relatively) store of wealth, while crypto as it exists today is mostly a speculative play. People invested in Gold as a hedge against inflation and fiat money manipulation. They invested in Bitcoin hoping it would go way up and they could make a buck.

Crypto is a bubble commodity. One day it may represent value, but right now it doesn’t, IMO.

I don’t expect gold to go up in price - I expect it to lose less than the equivalent money held in dollars or invested in the market if the economy REALLY goes south. It will only go up in relative dollars in the case of severe inflation - say, over 10%. I expect it to increase in price relative to the dollar if the expectation is that inflation will be with us for the forseeable future.

The biggest thing with gold is that it’s a place to park money when all other investments are tanking and the dollar is inflating. You are simply betting that it will hold onto value somewhat better than stocks, bonds, or cash.

If you live in the American upper midwest, you can buy Bitcoin at Kwik Star. I just saw that a couple days ago.

I actually found that a bit creepy.

But that’s a particular set of circumstances. I agree that is a period when stocks are falling and currency is losing value due to inflation, gold is a good place to store your capital.

But the point is that gold holds its value. That’s a good thing when other assets are declining in value. However it makes gold a poor investment in general. If you buy ten kilograms of gold and wait twenty years, you’ll have the exact same ten kilograms of gold you started with. If you had taken that same amount of money and bought stocks, they most likely would have increased in value over the twenty year period.

Gold is a good investment in bad times. Stocks are a better investment in normal times. (Ammunition and canned food is a better investment in really bad times.) Gold should never be the central pillar of your investment plans.

I saw a bitcoin selling machine earlier this year when I was in Texas. It was in the lobby of an HEB supermarket.

I think you can buy Bitcoin from the Coinstar machine at my local supermarket.

Yep. Coinstar machines sell bitcoin.