Since inflation began its ascent in early 2021, gold, despite its reputation, has served poorly as a hedge against rising prices (see Chart 1).

During the late 1970s the gold price surged along with double- digit annual inflation. But over the long-term data confirm that the gold price has been far too volatile to serve reliably as an ongoing hedge against rising prices. Chart 2 (following page) shows that monthly changes in the gold price have dwarfed monthly changes in CPI. Indeed, the latter series (in orange) is barely perceptible alongside the gold series.

Gold returns are impacted by many factors, including changes in U.S. interest rates. For decades global financial markets have embraced U.S. Treasury debt the safest form of debt available, so Treasurys compete with gold as a safe-haven asset. In fact, the three-month Treasury bill (T-bill) is presented in finance textbooks as a proxy for the theoretical risk-free rate of return.

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