Does gold really work as an inflation hedge?
Gold can’t protect investors from inflation anymore: lots of experts pointed this out throughout 2022. Is this true, though? Let’s have a detailed look.
Gold has lost just 9.5% this year, even though bond yields have risen sharply and USD is stronger than ever. Considering these huge obstacles, one could expect gold to dump much more than it did. Compared to assets like stocks, bonds and crypto, gold turned out to be surprisingly resilient.
It’s worth reminding that gold prices are denominated in USD. Relative to other currencies, gold has been performing even better, because they have dumped relative to the US dollar. For example, the pound has reached a new ATL, and so did Chinese yuan. In fact, the price of gold in 2022 dropped relative to just two major currencies as of September 27: USD and Brazilian real. Relative to all other global currencies, including CAD, gold’s price has actually increased.
The yellow metal has performed best against the Turkish lira, which dumped 52% this year faced with a shocking 80% inflation rate. The price of gold has doubled since the start of year, helping smart investors to protect their wealth. Turkish investors have a long tradition of buying gold, and many still prefer it to other assets as a store of value. In an Areda survey in May, 43% said that they consider gold the best form of investment.
Indeed, gold looks good compared to other assets right now. The problem is that most countries are used to living on borrowed money — and now their populations are paying for it. Most assets are depreciating in terms of real monetary value, so investors have no recourse for preserving their capital. Out of all the poor options, gold is the best — especially for those who seek to diversify.
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