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While gold does not have its real value reduced by inflation, it has not proven a great...

  • Tuesday, February 7, 2012, 10:58 AM ET
    While gold does not have its real value reduced by inflation, it has not proven a great inflation hedge, according to a study by Dimson and Staunton (giants in this field of research). The metal's real return since 1900 has been 1.1%, with the main strike being that gold does not provide an income flow. Equities have returned 5.4% annualized over the same period.
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This news story has 25 comments:

  •  
    I'm not surprised. The value is in the short term turnover and not the long term possession.
    7 Feb 2012, 11:04 AM Reply Like
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    Gold is not a hedge against inflation. It's a hedge against bad government and instability. Instability and inflation go hand in hand so some might see a correlation.
    7 Feb 2012, 11:10 AM Reply Like
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    I would have to disagree with this study....I do not know their parameters...but I know the dollar has devalued more than the 1.1% each year....something is weird with this study
    7 Feb 2012, 11:11 AM Reply Like
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    There number is bogus. A simple FV analysis showing a starting value $20.67 shows compounded annual growth of 4.1 % to get to $1788 ( a little high vs. today). So I say BS on their report.

    Then gold didn't move from 1900 to 1935, so if you take 76 year period, then it's 6%. So double BS!.
    7 Feb 2012, 05:48 PM Reply Like
  •  
    I think they are subtracting inflation from the numbers to get the "real" return... to quote the post "The metal's real return"

    Which means it is a bit strange to say it's a poor hedge because it would appear to be close to the perfect hedge for inflation. You get back out almost exactly what you put in... I don't think I could want anything more from it.

    Equities returned 5% over inflation which makes them a better investment, with obviously higher risk.

    What this really shows is how little of the "growth" we see in the economy and in share values is real. The overwhelming majority of it is simply inflation. It also shows that a gold based monetary system more successfully contains inflation.
    9 Feb 2012, 04:56 AM Reply Like
  •  
    Better to look at the last 40 years after we removed the backing of gold. To do otherwise is to compare morons to geniuses, and conclude that their IQs are within an acceptable range. The purposeful disinformation in this article is quite palpable
    7 Feb 2012, 11:23 AM Reply Like
  •  
    Duh! Not many of my investments are 112 years old; most of them, in the last 10 years. Wonder how gold has fared vis a vis inflation over that period?
    7 Feb 2012, 11:24 AM Reply Like
  •  
    Using a stat from 1900 doesn't give a meaningful assessment. There was no Fed to screw thnigs up until 1913. The FDR theft by inflation in 1933 when gold was revalued from $20-something to $35 skews the numbers prior to that time. Gold was finally allowed to float in 1972. Any comparison of gold price to inflation prior to the 1972 policy shift is irrelevant. If you look at 1972 to present gold has done well against inflation, though a complicating factor is the government inflation rate as reported in the CPI has also changed in that period of time. In any event the 1900 number of 1.1% is not relevant.
    7 Feb 2012, 11:32 AM Reply Like
  •  
    Any study going back over 100 years to knock Gold is bullish for the yellow metal.
    7 Feb 2012, 11:37 AM Reply Like
  •  
    Nothing a 600% increase in the price of gold can't fix....
    Surely, the price of gold has not been supressed.
    That's just conspiracy theory.
    ..and Alan Greenspan testimony "we can just lease more"...

    a quote that Greenspan made before a senate committee on July 30, 1998, which in the meantime has become famous among FED observers: "Nor can private counterparties restrict supplies of gold, another commodity whose derivatives are often traded over-the-counter, where central banks stand ready to lease gold in increasing quantities should the price rise."

    Payback may be painful.

    I think the real take away from this data is the nonsense that pension funds, which are vastly underfunded, are fraudulently using 7.5% returns as a basis for their defined benefit payouts...defined benefit is a fraudulent idea. It needs to be abolished and replaced with defined contribution.
    7 Feb 2012, 11:48 AM Reply Like
  •  
    Actually, my view is NOT that gold is a great inflation hedge -- but that it is a great hedge on political and monetary chaos. Inflation and deflation lead to political and monetary chaos. (I guess this is what almost everyone responding to this article is saying.)

    We need to understand that all things have cycles. Buy gold in 1965 and sell it in 1983. Buy gold in 2001 and sell it in 2019. Buy gold in 1929 and sell it in 1947. No gold bug would really (I hope) argue that one wants to buy and hold gold for ever. If one followed my 18 x 18 or 36-year scheme outlined above, returns would be MUCH different.
    7 Feb 2012, 11:57 AM Reply Like
  •  
    Looks like Ill have to do a little data mining myself to figure this out. Either way, gold is commodity and in no way is it exempt from a bubble like any other commodity. What makes it worse is all these people who read crap on the news just want to pile into gold because some idiot on TV got his 15mins of fame. That is how bubbles form people!
    7 Feb 2012, 12:58 PM Reply Like
  •  
    You're right. And how do your recognize a bubble in gold. Look for those worthless gold penny stocks to be selling for $250 share, like in the early 1980's.
    8 Feb 2012, 12:05 AM Reply Like
  •  
    In the words of famed value investor Jean-Marie Eveillard "gold is a protection against extreme outcomes."
    7 Feb 2012, 02:12 PM Reply Like
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    Note that they start in 1900. The period of 1900 to 1970 saw about 0% appreciation in gold because it was pegged to the dollar.

    If the study was done from 1970 to present then it would be a very different conclusion.
    7 Feb 2012, 05:48 PM Reply Like
  •  
    1970 is a flawed year to select because gold was artitificially low because of its Government-mandated peg to the dollar. One would need to select some post-float price when gold was judged to have rebounded to its then real market value. That will make for a more valid comparison of actual relative "market" performances.
    8 Feb 2012, 02:07 PM Reply Like
  •  
    So many goldbugs miss the point of research like this. It not to bash your precious. The heretics arent questioning your religion.
    Some of you sound like the stock investor of the 90s putting down gold investors.
    I think the expression is "what goes around comes around".
    7 Feb 2012, 05:52 PM Reply Like
  •  
    When you are using flawed data it is hard not to point out the obvious bias.

    None of the people who are bullish are hurt by this but you need to point out the flaws in order to help investors made objective investment decisions.
    7 Feb 2012, 11:34 PM Reply Like
  •  
    What flawed data are you talking about?
    8 Feb 2012, 01:21 PM Reply Like
  •  
    http://bit.ly/zB4LNF

    The United States usually determines the historical price of gold. One ounce of gold was fixed at an estimated $20.67 US Dollars (USD) for many decades until 1934, at which point the price was raised to about $35 USD per ounce. In 1968, a two-tiered pricing structure was established, and by 1975 the price of gold was allowed to fluctuate.

    -----

    When you use the old data and do not disclose that the price of gold was fixed for such a long period of time the analysis becomes flawed.
    8 Feb 2012, 01:40 PM Reply Like
  •  
    What the data confirm is that one can be a good gold "trader," but not a good gold "investor."
    8 Feb 2012, 02:05 PM Reply Like
  •  
    Did you look at the actual report that you are saying is using flawed data? Specifically page 12 figure 9?
    8 Feb 2012, 03:12 PM Reply Like
  •  
    If any of you are interested, here are two economic studies done that confirm gold's haven status vs. equities in different scenarios. I like the Oxford one better than the latter one.

    http://bit.ly/yo231o

    http://bit.ly/wxN5X9
    8 Feb 2012, 10:34 AM Reply Like
  •  
    Thank you for those links. I'll go read them. The more information the better.
    8 Feb 2012, 01:22 PM Reply Like
  •  
    Survivorship bias in stocks: what if you invested in the 1916 Russian stock market? Dimson is a company with stock bias. And finally, this gem: "Gold is the only asset that does not have its real value reduced by inflation. It has a potential role in the portfolio of a risk-averse investor concerned about inflation," it said.

    Who said this? Dimson. See also this article "WHILE...". So put that in your pipe and smoke it, gold shorts!
    10 Feb 2012, 08:26 AM Reply Like
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