# "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:** 3
**Author:** ![Great\_Antibob](https://avatars.discourse-cdn.com/v4/letter/g/e47c2d/32.png) [@Great\_Antibob](https://boards.straightdope.com/u/Great_Antibob)\ **Post date:** [November 19, 2024, 10:01pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/41 "2024-11-19T22:01:03Z")
> [@wolfpup](#): > > 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. In volume, anyway. I’ve not seen any I would trust to hold up against that much weight. Also, around here, anyway, bank safety deposit boxes are in short supply. ---
**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, 10:25pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/42 "2024-11-19T22:25:36Z")
> [@Chronos](#): > > If that’s your measure, then you ought to be stockpiling rice, not gold.   Rice goes bad, and bugs get into it. And it’s not fungible for other necessities. I know your response was only semi-serious, but in all seriousness, gold is durable, corrosion-free, beautiful, and almost infinitely malleable. Gold bars last forever, and if long, long history is any guide, retain value forever. Bit of a funny digressive anecdote. In my youth I dabbled in various speculative markets just for fun, and bought a small gold bar sometime in the late 70s when gold seemed to be on a rise. I thought it would be cool to possess the actual real thing, so I did, purchased over the counter at a special ScotiaBank facility that was the only bank in Canada that bought and sold gold bullion. The funny part of this is that my elderly mother, who absolutely never speculated on anything and never in her life owned anything more adventurous than government savings bonds, considering the stock market a scam, for some crazy unknown reason decided to do the same, and bought a bunch of gold. I don’t remember the price point we bought it at but it must have been in the $400 range because when it suddenly skyrocketed to $800 we both sold, doubling our money and figuring it couldn’t hold. It didn’t, and collapsed soon afterwards, taking years to get back to $800. Not taking credit for anything, this was just pure dumb luck and I can’t even remember what possessed either of us to do it. What I do remember was that the bank facility that traded in gold was very crowded the day I came to sell. It was classic crowd psychology, possessed by gold fever! Maybe there’s a moral there somewhere, maybe not. But I think the general wisdom well worth heeding is in that Forbes snippet I posted upthread – gold can protect you from inflation and maybe exceed it quite a bit, but only in the very long term. In the short term, it has its own unique market dynamics, and may act in contrarian ways for many years. ---
**Author:** ![Maserschmidt](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/maserschmidt/32/18829_2.png) [@Maserschmidt](https://boards.straightdope.com/u/Maserschmidt)\ **Post date:** [November 19, 2024, 10:30pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/43 "2024-11-19T22:30:22Z")
> [@peccavi](#): > > So, I have a silo of wheat in my backyard. I had a pile of sugar in my backyard, but the bees took it away. ☹ ---
**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, 10:42pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/44 "2024-11-19T22:42:46Z")
I recall a daytime TV ad I saw at some lunch counter somewhere. Probably around year 2000. The huckster comes on selling gold coins. Blah, blah collector pretty blah. Then the kicker: > Gold prices have never been higher than today! Now’s the time to buy!!1! Wait, what? What happened to buy low _sell_ high? Oh, I get it: _they_ bought low and are now selling high. The rubes’ job is to buy at the peak. ---
**Author:** ![DrDeth](https://avatars.discourse-cdn.com/v4/letter/d/b487fb/32.png) [@DrDeth](https://boards.straightdope.com/u/DrDeth)\ **Post date:** [November 20, 2024, 2:44am UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/45 "2024-11-20T02:44:55Z")
> [@wolfpup](#): > > 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, Which is an expense, right? > [@dolphinboy](#): > > Inflation has been high in recent years Not so much, 3-4 years ago, sure. ---
**Author:** ![DaveUnknown](https://avatars.discourse-cdn.com/v4/letter/d/94ad74/32.png) [@DaveUnknown](https://boards.straightdope.com/u/DaveUnknown)\ **Post date:** [November 20, 2024, 5:53am UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/46 "2024-11-20T05:53:39Z")
A lot of the spike in gold over the last 18 months is due to buying by China. ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [November 20, 2024, 6:50am UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/47 "2024-11-20T06:50:24Z")
> [@We\_re\_wolves\_not\_werewolves](#): > > A more practical hedge against inflation would be TIPS (treasury inflation-protected securities) or series I savings bonds, both issued by the US government. In both cases, the total return is adjusted based on inflation (a combination of the principal and coupon interest rate). This x1000. If you are afraid that the Bureau of Labor Statistics will be corrupted (or you want to hedge against that risk), you can buy foreign currencies or …foreign inflation protected bonds. You take on currency risk, but that’s sort of the point: you are hedging against dollar collapse. Ok, what about global meltdown? Obi-wan Kenobi, is gold our only hope? Not… necessarily. Economist [Noah Smith pondered this in 2013](https://noahpinionblog.blogspot.com/2013/07/what-is-payoff-structure-of-gold.html): > This idea is pretty common. But is it true? Would gold really pay off in the event of a calamitous social disruption? I’m really not sure that it would. > The basic idea here is that fiat money’s value rests on the stability of governments; remove governmental stability, and people will go back to using gold as money (or at least to using gold-backed money), as in days of yore. If that happened, it would be handy to have stocked up a whole bunch of the suddenly back-in-use medium of exchange. > But I seriously question whether this would ever happen. See, both technology and the structure of governance have really changed since the days when gold was used for money. The assumption that the end of the Recent System (fiat money) would make us revert to the Old System (gold-backed money or gold as money) does not seem well-founded to me. > First of all, gold has always had a lot of limitations as a medium of exchange. Most notably, it is relatively easy to steal. To realize this, all you have to do is look at games like World of Warcraft, Diablo, Dungeons and Dragons, or the original Final Fantasy. In those games, gold is the money, and you often get gold not by doing an honest day’s work, but by _running around and beating people up and taking their gold_. In other words, the entire world of modern fantasy role-playing is a subtle joke on gold’s unsuitability as a medium of exchange. > Now in the past, people just sucked it up and dealt with this, spending large amounts of money and effort to guard their gold. But in the modern day, better alternatives are available. In particular, electronic security is cheaper than physical security. It’s easier to guard digits than lumps of gold. Smith then traces the scenario where electronic systems collapse. Would gold be valuable then. Not necessarily. Gold was valuable 500 years ago, because big powers wanted them. Big powers such as Spain, France, or the UK were islands of stability. Buy you just assumed that stability away. If electronic systems go belly up what you want is bullets and water filtration systems, not gold. Like other currencies gold returns aren’t especially correlated with the stock market. So there’s some advantage there, though again currency speculation is a seriously competitive financial asset if that’s your concern. ---
**Author:** ![DesertDog](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/desertdog/32/11503_2.png) [@DesertDog](https://boards.straightdope.com/u/DesertDog)\ **Post date:** [November 20, 2024, 10:31am UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/48 "2024-11-20T10:31:08Z")
> [@md-2000](#): > > I have a special deal where I keep half of it in my backyard. Back in the eighties when the Hunt brothers were screwing around with silver futures I noticed a coworker day after day would bring in and eat only an energy bar for lunch. When I asked another cw who knew him better he said it was probably all he could afford. “He took out a second mortgage on his house, bought a bunch of silver contracts, then had to take delivery when the bottom dropped out of the market. They’re sitting in his garage.” ---
**Author:** ![Pardel-Lux](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/pardel-lux/32/20182_2.png) [@Pardel-Lux](https://boards.straightdope.com/u/Pardel-Lux)\ **Post date:** [November 20, 2024, 1:51pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/49 "2024-11-20T13:51:25Z")
Oh, boy, I’m getting a flashback from the good old days when I was younger and [wasted our time](https://journals.sagepub.com/doi/abs/10.1177/0486613419856727?journalCode=rrpa) studying the theory of Marxism: > Unlike theorists who become preoccupied with particular functions and forms of money, Marx develops a comprehensive concept of money integrating its various functions and emphasizing the socio-economic basis of its existence. Money performs different functions including a measure of value, a means of purchase/exchange, a means of payment, and a means of hoarding, which are independent of money’s concrete forms. The functions of money as a means of purchase and means of payment relate to each other as money (income) and credit (money), which are fundamentally different. The quantity and availability of credit (money) may be influenced by the activities of the central bank and the private banking system. Credit (money), however, can only become money (income) if and when it enters the domain of social production as an embodiment of the value of social labor and social purchasing power. This inextricable link between money and social production sets natural limits to the ability of monetary policy to influence both monetary and non-monetary developments in contemporary capitalism. An analysis grounded in Marx’s theory of money can provide insights into a range of contemporary monetary phenomena including hoarding, the rush to liquidity during financial crises, the scramble for government debt as a source of ultimate liquidity, and the limits to conventional and unconventional monetary policy. And that did not even start to handle money’s function as a fetish, which may be the main reason gold is so beloved by some. Concerning hedging against inflation, all I can say is that during the last two hefty international crises, that is, 2008 and 2020, all asset classes correlated a lot. It seems that the asset classes that were deemed “risky” lost value because there was a crisis, but the “safe” asset classes lost value too because (so I was told by the banker who had to explain the losses in my conservative portfolio) the ones losing money with the risky assets had to sell their safe assets too to generate liquidity to cover their bets, thus the safe assets fell too because lots of offer and little demand. Gold (which I held only marginally, I don’t much believe in this fetish) fell too. Granted, both crises were short lived and inflation free, but gold did not hold well. For the next crisis, remember: hoard liquidity, then, when everybody is desperate, buy assets really cheap. Easier said than done, of course. ---
**Author:** ![md-2000](https://avatars.discourse-cdn.com/v4/letter/m/9d8465/32.png) [@md-2000](https://boards.straightdope.com/u/md-2000)\ **Post date:** [November 20, 2024, 5:28pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/50 "2024-11-20T17:28:20Z")
> [@wolfpup](#): > > I don’t remember the price point we bought it at but it must have been in the $400 range because when it suddenly skyrocketed to $800 we both sold, doubling our money and figuring it couldn’t hold. It didn’t, and collapsed soon afterwards, taking years to get back to $800. We had a coworker where I used to work at about the same time, that was all hot to trot about getting rich - he bought a huge amount of gold (certificates, I assume) for his invesment portfolio and was severely razzed when the price dropped from $800 to about $350 at the time. > [@wolfpup](#): > > I know your response was only semi-serious, but in all seriousness, gold is durable, corrosion-free, beautiful, and almost infinitely malleable. Gold bars last forever, and if long, long history is any guide, retain value forever. The other main point is that gold is compact. A month’s wages would be a few coins. > [@Measure\_for\_Measure](#): > > Smith then traces the scenario where electronic systems collapse. Would gold be valuable then. Not necessarily. Gold was valuable 500 years ago, because big powers wanted them. The main thing is, gold is like Beanie Babies or Van Goghs. It;s worth something because someone will trade something for it. If we get back to a post-apocalyptic Mad Max world, what would be valuable? (Gasoline!) Obviously manufactured goods that were hard to make but still useful, food, weapons. Tools for manufacturing, and so on. Money is essentially a way to keep score, instead of trading a quarter of a pig for half a bag of rice. I would suggest gold would not be that valuable simply because there’s not enough around for a decent economy and much of it is in a deep hole in Manhattan. (Which itself may or may not be there.) But for roughly the same economy - such as a major depression - I don;t think the preceived value of gold will change much. If paper money gets to the point like the Weimar Republic where you need a wheelborrrow to carry the bills to market for a loaf of bread, then gold is a sure thing. Old Argentine inflation joke when prices skyrocketed all day: Q: “Which is cheaper, the bus or the taxi?” A: “The taxi, because you don’t pay until the end of the ride.” ---
**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 20, 2024, 5:39pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/51 "2024-11-20T17:39:13Z")
Cost of a horse in Roman times: 125 denari or about 22.75g of gold Cost of a horse in Elizabethan times: £10 or about 80.75g of gold Cost of a car in Modern times: $48,000 or about 563g of gold Given the sheer quantity of time, I suppose that that’s not too bad but a true hedge against inflation would stay constant or shrink. ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [November 20, 2024, 5:52pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/52 "2024-11-20T17:52:35Z")
> [@md-2000](#): > > If paper money gets to the point like the Weimar Republic where you need a wheelborrrow to carry the bills to market for a loaf of bread, then gold is a sure thing. You don’t need to go that far. Just assume 300% inflation. It’s happened in lots of countries and I’m not even sure that’s hyperinflation. Middle income countries used to routinely function under such conditions. They would measure inflation at a monthly rate. Money market account funds should do ok, until the government makes them difficult to access. Stocks will do ok over the long run, since earnings will track inflation. But the real hedge would be foreign investments such as foreign currency, foreign stocks, and foreign bonds. That would have worked under Weimar conditions, just as it would have worked during other hyperinflations such as Bolivia (1985) or more recently in Venezuela. Except that you would have to deal with foreign currency controls. Funny green slips of paper with pictures of Presidents on them don’t earn interest, so they would perform poorly. But they always do. US dollars have a range of returns: for fun I’ll list some of them: $100 bill: 0.00% Chase Savings Account: 0.01% American Express Online Savings Account: 4.00% Fidelity Money market fund, Federal: 4.28% (though they vary) VMFXX Vanguard Federal Money Market Fund 4.59% Reference: CPI inflation over the past year: 2.6% The point: 1) Get rich slow. 2) Get thee to Vanguard. ---
**Author:** ![OldOlds](https://avatars.discourse-cdn.com/v4/letter/o/a3d4f5/32.png) [@OldOlds](https://boards.straightdope.com/u/OldOlds)\ **Post date:** [November 20, 2024, 5:58pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/53 "2024-11-20T17:58:12Z")
> [@Dewey\_Finn](#): > > 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. Also, in an apocalyptic scenario, what you really own with that ETF is some zeroes and ones on a hard drive somewhere. Again, that’s not a reason not to own it, as that describes 100% of my wealth outside my house. But if what you need is to trade gold for bullets and Alot Hides, then the ETF isn’t helpful. ---
**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 20, 2024, 6:04pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/54 "2024-11-20T18:04:43Z")
I’m not planning for an apocalyptic scenario, so that’s irrelevant. ---
**Author:** ![OldOlds](https://avatars.discourse-cdn.com/v4/letter/o/a3d4f5/32.png) [@OldOlds](https://boards.straightdope.com/u/OldOlds)\ **Post date:** [November 20, 2024, 6:05pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/55 "2024-11-20T18:05:21Z")
I wasn’t suggesting you were, but it IS one of the groups to whom gold appeals. ---
**Author:** ![Yllaria](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/yllaria/32/3452_2.png) [@Yllaria](https://boards.straightdope.com/u/Yllaria)\ **Post date:** [November 20, 2024, 7:22pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/56 "2024-11-20T19:22:23Z")
> [@goodkitty](#): > > In 1978, a quarter would get me a Hershey bar > In 2024, a quarter does not get me a Hershey bar. But if the quarter is dated 1964 or earlier, it’s worth about $5 for the silver. That can get me one of the BIG Hershey bars. Dads who saw the 1965 changeover and picked out the silver quarters from their change for the next decade had a really good return on investment. Well, their heirs did. ---
**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 20, 2024, 7:29pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/57 "2024-11-20T19:29:26Z")
> [@Sage\_Rat](#): > > Cost of a horse in Roman times: 125 denari or about 22.75g of gold > Cost of a horse in Elizabethan times: £10 or about 80.75g of gold > Cost of a car in Modern times: $48,000 or about 563g of gold > > Given the sheer quantity of time, I suppose that that’s not too bad but a true hedge against inflation would stay constant or shrink. Your post caused me to try to price horses online to keep your time series comparing the exact same basket of goods. I know nothing of horses but I can usually recognize one outstanding in its field. 🐎 🙂 Most horses for sale seem to be adults, so one could say they’re “used” horses, not “new” horses. Setting that quibble aside … Ordinary working / riding horses seem to sell for $3-5K, while specialist show or breeding horses are up in the $30K-40K range. Thoroughbreds are a separate world not relevant to this post. To keep the numbers simple, if we assume a $4.8K horse (IOW 10% of your car price) then that’s 56.3g of gold. Which compared to ~23g in Rome or ~80g in Elizabethan eras suggests that gold isn’t really that bad as a long term value-holder. Color me rather surprised. Or perhaps this is just a coincidence and a different basket of goods (bushel of wheat, firstborn royal child, evil troll’s bridge toll, etc.) might experience very different gold-denominated price trajectories over the centuries. 😉 ---
**Author:** ![74westy](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/74westy/32/3950_2.png) [@74westy](https://boards.straightdope.com/u/74westy)\ **Post date:** [November 20, 2024, 8:23pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/58 "2024-11-20T20:23:41Z")
Maybe horses would be a lot more valuable if we didn’t have cars. ---
**Author:** ![rbroome](https://avatars.discourse-cdn.com/v4/letter/r/838e76/32.png) [@rbroome](https://boards.straightdope.com/u/rbroome)\ **Post date:** [November 20, 2024, 8:34pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/59 "2024-11-20T20:34:04Z")
> [@wolfpup](#): > > mallish medium sized safety deposit box in a bank’s vault, whenever I see comments about safe deposit boxes I am reminded of this: > **[Court Grills Government Over $86M FBI Raid On Security Deposit Boxes](https://www.forbes.com/sites/instituteforjustice/2023/12/11/court-grills-government-over-86m-fbi-raid-on-security-deposit-boxes/)** > > A federal appeals court in California looked into whether the FBI violated the Fourth Amendment rights of hundreds of people who rented boxes from an L.A. business. I understand this was a raid on a private business not a bank. But it is still a sobering event. the courts eventually required the Government to give the contents back to the owners, but it took years and many court cases. The only really safe investment is investing in a stable government. Unfortunately, that isn’t happening in the US right now. ☹ ---
**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 20, 2024, 11:16pm UTC](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458/60 "2024-11-20T23:16:04Z")
> [@rbroome](#): > > The only really safe investment is investing in a stable government. Indeed. I’ve often maligned the American extreme distrust of government, but I’m coming to realize that, at least to some extent, there’s a reason for it. As far as I’m concerned a bank’s safety deposit box is as safe as the inside of a modern bank vault, which is literally where it is. [Previous page](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458.md?page=2) [Next page](https://boards.straightdope.com/t/gold-is-a-hedge-against-inflation-meaning/1010458.md?page=4)