# "Gold is a hedge against inflation." Meaning? **URL:** \ **Category:** Factual Questions\ **Created:** [November 19, 2024, 12:15pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458 "2024-11-19T12:15:30Z")\ **Posts on this page:** 20\ **Page:** 2
**Author:** ![mixdenny](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/mixdenny/32/2962_2.png) [@mixdenny](https://boards.straightdope.com/u/mixdenny)\ **Post date:** [November 19, 2024, 5:41pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/21 "2024-11-19T17:41:32Z")
> [@goodkitty](#): > > In 1678 BCE an ounce of gold would get you 500lbs of rice. > In 2024 an ounce of gold will get you 500lbs of rice. Not a good example… Gold topped out at $2700 a few weeks ago and would buy you over 2200 lbs of rice. ---
**Author:** ![wolfpup](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/wolfpup/32/10618_2.png) [@wolfpup](https://boards.straightdope.com/u/wolfpup)\ **Post date:** [November 19, 2024, 5:42pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/22 "2024-11-19T17:42:24Z")
I’m not sure that chart is as useful as I thought it was, since it compares gold price to the CPI **rate** , not the actual average cost of goods. There are all kinds of more revealing charts that show gold prices compared to cost of goods, compared to inflation-adjusted prices, and compared to “fair value” benchmarks. In general I think the _Forbes_ article provides a good overall assessment. Just for fun I looked at the price of gold (not inflation adjusted) in the middle of the 20th century and again in 1974, which was a few years after gold started a dramatic rise in price for the first time. Then I compared those prices to modern dollar equivalents using a US inflation calculator. In 1950 (average) the price of an ounce of gold was $34.72. An item that cost $34.72 to buy in 1950 would cost $454.77 today. By 1974 (Oct) the price of gold had soared to $159.98. An item that cost $159.98 to buy in 1974 would cost $1024.34 today. The price of gold today (as of October) is $2746.70. What this tells me is that (1) from those two benchmark time periods to today, gold has greatly outpaced inflation, and (2) the pundits who are saying that gold is greatly overpriced today relative to inflation-adjusted “fair value” are probably right. ---
**Author:** ![We\_re\_wolves\_not\_werewolves](https://avatars.discourse-cdn.com/v4/letter/w/838e76/32.png) [@We\_re\_wolves\_not\_werewolves](https://boards.straightdope.com/u/We_re_wolves_not_werewolves)\ **Post date:** [November 19, 2024, 5:43pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/23 "2024-11-19T17:43:07Z")
> [@md-2000](#): > > This of course presumes the government-published CPI is correct. It is entirely possible in a government where civil servants are beholden to the leader and do his bidding, that the CPI numbers can be fudged to the benefit of the government that would have to pay out. Plus, whether the actual calculation of the CPI reflects the real world that may have changed over time. no doubt. But if we are getting to the point where the US government is defaulting on its debts and publishing misleading CPI numbers, something has gone very seriously wrong, and you might be better off stockpiling guns, ammo, and food, rather than worrying about your retirement funds. ---
**Author:** ![LSLGuy](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lslguy/32/5813_2.png) [@LSLGuy](https://boards.straightdope.com/u/LSLGuy)\ **Post date:** [November 19, 2024, 5:54pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/24 "2024-11-19T17:54:54Z")
> [@Sage\_Rat](#): > > REITs are likely to be a fairly safe investment if all you want to do is not lose value. But, that said, you may be losing growth. These would be the vehicles owning all that vacant office space as the world is switching to WFH? Or all the vacant retail space as the world is switching to e-commerce? Sounds like an excellent way to lose your a$$. REITs investing in AirBnBs and robber baron-controlled apartments might have a better outlook. ---
**Author:** ![Sage\_Rat](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/sage_rat/32/399_2.png) [@Sage\_Rat](https://boards.straightdope.com/u/Sage_Rat)\ **Post date:** [November 19, 2024, 6:34pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/25 "2024-11-19T18:34:28Z")
> [@LSLGuy](#): > > These would be the vehicles owning all that vacant office space as the world is switching to WFH? WFH is shrinking, not growing, but that is a good point that there is some form of conversion of office space happening and it remains to be seen what that is. Still, there’s a variety of REITs, only a fraction are office space focused. You shouldn’t invest in anything without looking at it and understanding the specifics. ---
**Author:** ![Alessan](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/alessan/32/465_2.png) [@Alessan](https://boards.straightdope.com/u/Alessan)\ **Post date:** [November 19, 2024, 7:00pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/26 "2024-11-19T19:00:33Z")
> [@md-2000](#): > > The same suggestion that gold holds its value also applies to “Land is a good investment, they aren’t making any more of it.” However, land has expenses for holding onto, and what value it gains can be huge or not, a crapshoot. On the other hand, unlike gold, real estate can also generate money. That’s the problem with gold: it doesn’t actually do anything. ---
**Author:** ![Dewey\_Finn](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dewey_finn/32/4222_2.png) [@Dewey\_Finn](https://boards.straightdope.com/u/Dewey_Finn)\ **Post date:** [November 19, 2024, 7:04pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/27 "2024-11-19T19:04:59Z")
Of course, there are costs associated with holding gold as well, particularly the need to secure it. ---
**Author:** ![DrDeth](https://avatars.discourse-cdn.com/v4/letter/d/b487fb/32.png) [@DrDeth](https://boards.straightdope.com/u/DrDeth)\ **Post date:** [November 19, 2024, 7:11pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/28 "2024-11-19T19:11:16Z")
> [@LSLGuy](#): > > The theory is that gold represents true value, and anything denominated in government currency is … not actual value. It’s nutty of course, Yep. That line is just more propaganda and mistruths from gold bugs, who thing gold is a magic thing, not just another commodity. > [@goodkitty](#): > > In 1678 BCE an ounce of gold would get you 500lbs of rice. > In 2024 an ounce of gold will get you 500lbs of rice. > > In 1978, a quarter would get me a Hershey bar > In 2024, a quarter does not get me a Hershey bar. But it isnt really gold or a quarter- it is how long you have to work to earn either. That is the false analogy. Min wage 1978 $3.68/hr, today= $16.00. > [@md-2000](#): > > However, land has expenses for holding onto, So does gold, if you have more than a few ounces. > [@Dewey\_Finn](#): > > Of course, there are costs associated with holding gold as well, particularly the need to secure it. ---
**Author:** ![LSLGuy](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lslguy/32/5813_2.png) [@LSLGuy](https://boards.straightdope.com/u/LSLGuy)\ **Post date:** [November 19, 2024, 7:33pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/29 "2024-11-19T19:33:38Z")
> [@DrDeth](#): > > But it isnt really gold or a quarter- it is how long you have to work to earn either. That is the false analogy. Min wage 1978 $3.68/hr, today= $16.00. 100% true for a laborer. But for a retired person (or serious fatcat) living off owned assets and their financial income, a $X nest egg in stocks and/or bonds will buy half as much goods after inflation doubles the CPI. Yes, during that time the stock market may move, but in periods of severe inflation it has not tended to keep up. And bonds (other than inflation-compensated bonds) of course tend to be slaughtered. ---
**Author:** ![Jackmannii](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/jackmannii/32/311_2.png) [@Jackmannii](https://boards.straightdope.com/u/Jackmannii)\ **Post date:** [November 19, 2024, 7:45pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/30 "2024-11-19T19:45:47Z")
> [@DSeid](#): > > > [@Jackmannii](#): > > > > comparing the outcome of investing in gold vs. S&P 500 stocks, which do not favor putting money into gold > > Do you use the same analysis to argue against have any bonds allocation? Not at all, nor have I advocated owning no gold. I think you missed the part of my post that cited a favorable return for gold investors vs the S&P 500 IF one bought gold in 2000. ---
**Author:** ![DSeid](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dseid/32/20194_2.png) [@DSeid](https://boards.straightdope.com/u/DSeid)\ **Post date:** [November 19, 2024, 8:06pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/31 "2024-11-19T20:06:45Z")
> [@Dewey\_Finn](#): > > Of course, there are costs associated with holding gold as well, particularly the need to secure it. Personally my gold exposure is via an ETF. No costs to secure it. I suspect I am pretty typical in today’s world. > [@Jackmannii](#): > > nor have I advocated owning no gold. I think you missed the part of my post that Sorry I misunderstood your point. ---
**Author:** ![Dewey\_Finn](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dewey_finn/32/4222_2.png) [@Dewey\_Finn](https://boards.straightdope.com/u/Dewey_Finn)\ **Post date:** [November 19, 2024, 8:10pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/32 "2024-11-19T20:10:52Z")
> [@DSeid](#): > > > [@Dewey\_Finn](#): > > > > Of course, there are costs associated with holding gold as well, particularly the need to secure it. > > Personally my gold exposure is via an ETF. No costs to secure it. I suspect I am pretty typical in today’s world. That’s reasonable, though the post I was replying to was talking about the costs of owning land outright, which is why I made the comparison to owning gold outright. If instead we’re talking about owning a gold ETF, the fair comparison would be to owning a real estate ETF. ---
**Author:** ![We\_re\_wolves\_not\_werewolves](https://avatars.discourse-cdn.com/v4/letter/w/838e76/32.png) [@We\_re\_wolves\_not\_werewolves](https://boards.straightdope.com/u/We_re_wolves_not_werewolves)\ **Post date:** [November 19, 2024, 8:14pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/33 "2024-11-19T20:14:05Z")
> [@Alessan](#): > > That’s the problem with gold: it doesn’t actually do anything. that’s true, but it can also be said about non-dividend paying stocks ---
**Author:** ![DSeid](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dseid/32/20194_2.png) [@DSeid](https://boards.straightdope.com/u/DSeid)\ **Post date:** [November 19, 2024, 8:15pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/34 "2024-11-19T20:15:58Z")
Yes. And REITs have expense ratios. Because of the costs of selection and the costs associated with holding real estate. ---
**Author:** ![wolfpup](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/wolfpup/32/10618_2.png) [@wolfpup](https://boards.straightdope.com/u/wolfpup)\ **Post date:** [November 19, 2024, 8:45pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/35 "2024-11-19T20:45:36Z")
> [@DrDeth](#): > > > [@md-2000](#): > > > > However, land has expenses for holding onto, > > So does gold, if you have more than a few ounces. Maybe for a very generous interpretation of “more than a few ounces”. Even a smallish medium sized safety deposit box in a bank’s vault, about the size of a small desk drawer, could easily hold 20 standard 1 kg gold bars, probably more. At a current value of around $85,500 each, that’s $2 million or more worth of gold, and the annual cost of the box is practically peanuts – like maybe $60. A much greater cost, if one was so inclined, would be the security involved in transporting the stuff to and from the bank. Presumably it wouldn’t happen often. It’s probably more practical to own some type of gold certificates or other proxy for the actual stuff. ---
**Author:** ![penultima\_thule](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/penultima_thule/32/3833_2.png) [@penultima\_thule](https://boards.straightdope.com/u/penultima_thule)\ **Post date:** [November 19, 2024, 9:27pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/36 "2024-11-19T21:27:19Z")
> [@dolphinboy](#): > > Inflation has been high in recent years As one who was living and studying secondary school economics in the 70s, I find that statement both correct and amusing. ---
**Author:** ![dolphinboy](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dolphinboy/32/330_2.png) [@dolphinboy](https://boards.straightdope.com/u/dolphinboy)\ **Post date:** [November 19, 2024, 9:39pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/37 "2024-11-19T21:39:09Z")
> [@penultima\_thule](#): > > As one who was living and studying secondary school economics in the 70s, I find that statement both correct and amusing. Everything is relative. When I purchased my first house in 1980 I was lucky to get a mortgage at only 18%. In contrast, my nephew just purchased his first home and got a loan at 6% and was very unhappy because it was up so high compared to the past few years. As I said, it’s all relative. ---
**Author:** ![wolfpup](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/wolfpup/32/10618_2.png) [@wolfpup](https://boards.straightdope.com/u/wolfpup)\ **Post date:** [November 19, 2024, 9:39pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/38 "2024-11-19T21:39:56Z")
> [@penultima\_thule](#): > > > [@dolphinboy](#): > > > > Inflation has been high in recent years > > As one who was living and studying secondary school economics in the 70s, I find that statement both correct and amusing.   Until I misplaced it somewhere, I had a booklet of mortgage amortization tables from the early 1980s – an era that I lived through, and amortization tables that I actually used. The tables went up to a maximum interest rate of 25%. ---
**Author:** ![Gordon\_G](https://avatars.discourse-cdn.com/v4/letter/g/3da27b/32.png) [@Gordon\_G](https://boards.straightdope.com/u/Gordon_G)\ **Post date:** [November 19, 2024, 9:44pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/39 "2024-11-19T21:44:47Z")
The question has two parts: (1) What is a hedge? (2) Is gold a good hedge? Suppose you are offered two investments, A and B. Each has a 50% chance of tripling (compared to a basket of your favorite consumables) in a year, and 50% chance of going to zero. If these events are perfectly correlated, it matters not what combination of A and B you choose. Your _average_ gain will be 50% but half the time you’re ruined. If A and B are perfectly anti-correlated invest equally in each, for a _guaranteed_ 50% return. If there’s no correlation invest equally in each. Again your expected gain is 50% but you’re ruined only a quarter of the time. This simplistic example ignores the complexity of portfolio diversification. You might want to put 40% into U.S. stocks, 15% into U.S. bonds, 10% into foreign stocks, 5% into gold, 5% into silver, 15% into REITs, 10% into Bitcoin (_totally_ random example). DIVERSIFY (i.e. make “hedge” bets) to safeguard your wealth. Instead pick 1 or 2 good bets if you want to get rich quick! Lately _many_ asset classes are rising. Gold is still near the all-time high set a month ago; U.S. stock averages are essentially at all-time highs. Bitcoin set its all-time high just a few hours ago! Even silver is near a 12-year high. And all these dollar-based highs are _not_ due to a weak dollar. The Dollar has risen recently compared with Yen, Euro, etc. Foreigners are pleased to invest in the U.S., owning about 20% of U.S.'s stocks and bonds. They’re not particularly worried about political dysfunction in the U.S.: The U.S. is so dominant that its problems will cause severe problems around the world. None of which answers your question! If the stock and Bitcoin booms continue, gold is unlikely to keep up. When the cataclysm finally comes, gold is likely to outperform the U.S. dollar and stocks. Even that much advice is worth less than what I’m charging for it! 🕶 ---
**Author:** ![Chronos](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/chronos/32/134_2.png) [@Chronos](https://boards.straightdope.com/u/Chronos)\ **Post date:** [November 19, 2024, 9:47pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/40 "2024-11-19T21:47:46Z")
If that’s your measure, then you ought to be stockpiling rice, not gold. [Previous page](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458.md?page=1) [Next page](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458.md?page=3)