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

It’s hard to say. If you held gold over stocks for the last 10 years, you lost big. Over thatbtime, gold actually declined 4% while the market gained 137%.

On the other hand, over 20 years gold went up 425%, while the market gained 242%. 2008-2012 were Very good years for gold.

But over 30 years, gold loses again.

Fun chart to plat with:

This is mildly off topic, but why is “pork bellies” the go-to comparison to gold?

I mean, I like a good ramen as much as the next guy, but I don’t get the relevance of the comparison. Yet is seems common.

I doubt anyone is doing any serious comparisons to pork bellies in the current decade.

Pork belly futures were a pioneering financial instrument when they were introduced in 1961, but they were phased out in 2011 due to declining market interest and changes in the bacon market.

Thank you. A little ignorance fought.

Because it takes too long to say frozen concentrated orange juice.

Talk about fiat currency.

How can anyone make any claims at all about how our modern, industrialized, globalized economy will function over decades or centuries where it has barely existed for decades?

Or frozen concentrated orange juice.
I think the idea is that gold/silver/platinum is like any other commodity and we expect the price to go up during inflation. The advantage of precious metals is that they do not rot or degrade over time and I don’t have to get a COMEX contract to invest in it. But like any other investment, the key is buy low and sell high. Metal “investors” seem to be irrational because when it’s low no one wants it and then when it is high everyone wants some.

And I will ask the OP if they are looking at spot or real price. A 1 ozt AGE carries a 12% premium and silver is crazy at close to a 100% premium, so when you are looking at the price of silver, are you looking at the $19/ozt that is spot or the $36/ozt that it really costs?

I was looking at the spot price. $1,649.59 vs around $1,800 a year ago.

With premiums it’s more like $1850 today vs $1900 a year ago.

I saw one at a shopping mall in San Diego a few weeks ago. I had no idea such a thing existed.

I quite frequently hear the stability of gold compared to “a suit of clothes”. Of course even just today, the price of “a suit of clothes” can vary from $50 to $10000 depending on what kind of clothes you buy.

The size of the gold coin can also vary, although not usually by that much. I once gave my father a tiny 5-peso gold coin because he was into that stuff.

There’s also the issue of how good an economic standard a suit of clothes is. In the nineteenth century, producing cloth and then making a suit out of it required a significant amount of hand labor. In the twentieth-first century, much of that labor is mechanized. So it’s far easier and “cheaper” to produce a suit of cloth today than it was two hundred years ago.

If gold was holding a steady value and a gold coin bought a suit of cloth in the nineteenth century, then you would expect the same gold coin to buy several suits in the twenty-first century. If gold coins and suits of cloth have maintained a one-to-one equivalence, it’s a sign that the value of gold has been declining alongside the value of suits.

I guess you could argue that it experienced deflation in line with how the price of suits experienced deflation, so it’s still a good hedge? It’s a nonsense comparison, of course.

You’re right, nobody has claimed gold has a perfect correlation against the dollar. I also wasn’t addressing that claim. I argued that people who invest in gold to hedge against inflation rely on faith, contrary to the explicit premise from the original post, which we are asked to evaluate.

It’s hard to make claims over several centuries. Before 1971 most national currencies were valued in terms of gold. Any comparison from before is likely meaningless. Failure of the national currency was defined as failure of that currency to maintain parity to gold. Gold was the baseline by which value was measured. It was incapable of losing value. When there was a gold rush, local supply of gold would skyrocket. But gold didn’t lose value, everything else became more valuable. Think of that hotel by the mines charging $10,000 a month in 1890.

Go further back when gold was used as currency and it becomes even more meaningless to speak of gold as a stable protector of value. Better than what, silver? We’re only talking three to five centuries back.


Further reading:

Wouldn’t putting your money into a reserve currency like the US dollar or Euros have done just as well?

Surely, if gold is such a stable source of value, then other precious metals would be similarly stable. There’s nothing inherent to gold that would make it more stable than silver, or platinum.

And yet, over the centuries and even millennia, the relative prices of gold, silver, and platinum have varied wildly. Clearly, at least two of those three are not stable. If at least two of them are unstable, why would one not assume that all three are unstable?

That’s somewhat besides the point. While the risk is small, there’s some chance that all major currencies will suffer from extreme inflation because there’s nothing stopping it from happening such as a physical supply limit like there is with gold and crypto. The fact that central banks currently are very good at reigning in inflation doesn’t mean they always will be. I agree that it’s a silly risk to hedge against, but it’s not like the risk is absolutely zero.

The problem with hedging in this way is that market forces will cause more volatility in the value of the hedge than its value will usually increase due to inflation. Whether it ends up being a good investment is most likely down to those market forces, but some people trust more in the market to balance the value of things than in governments. Lack of trust in government is basically the key for all those who espouse this view. Given what we’re seeing lately in supposedly stable western democracies, it’s not entirely farfetched, only mostly so.