Perhaps it is because I somehow ended up buying $5,000 in gold coins a couple weeks ago, but I’ve been doing some reading about gold again. The stock market is at higher and higher valuations, while the Fed promises that interest rates will stay low for a long time. The real yield on TIPS remains negative, meaning that it is highly unlikely that any high-quality investment-grade bonds will beat inflation over the next decade. Is there really no alternative?

This Compound Advisors article does a great job exploring why gold is not an ideal hedge against inflation. The comparison chart below of performance since 1975 summarizes things in one picture. Over the 50 years since the US came off the gold standard, gold has only barely kept up with inflation while stocks and REITs… well, just look:

Here is the price of gold over the last decade (FRED).

Okay, so maybe I’m not interested in holding a huge chunk of gold as a long-term asset. But what about a little bit during this strange period of negative real yields? Movement Capital points out in the chart below that gold prices are “tethered” to real interest rates. Gold prices seem to go up when bonds stop keeping up with inflation.

If you own bonds, it is quite possible that your return this year has been negative. I peeked and the Vanguard Total Bond ETF (BND) is down 4% YTD (as of 3/19/21). Gold seems to perform best when bonds perform their worst, as highlighted below:

Therefore, if bonds are supposed to keep your portfolio safe, but right now they are in the vulnerable position of paying out less interest than inflation, gold might be a good complement. Even if gold just matches inflation, you would still come out ahead. Of course, gold often feels so volatile that it is hard to rely on the price for anything specific.

I’ve said before that I simply don’t have the proper faith in gold to own it long-term, and I’m still in that place. I suppose my primary observation is that low interest rates have made nearly everything go up in price (stocks, bonds, real estate, Bitcoin), but gold seems to be mostly ignored.

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Gold as a Hedge Against Bonds During Low Interest Rates from My Money Blog.


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