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Mazzei Minute: 09/22/23

Have you noticed less commercials trying to sell you gold? The onslaught of

advertising a few years ago stoking fears of financial calamity and inflation did not

turn out too well for recent gold investors.

Gold has quite the mixed record when it comes to providing a hedge against

inflation, according to a May article in Forbes magazine. When inflation

skyrocketed from 1973 to 1979, averaging 8.8% per year, gold increased an

amazing 35% per year.

But when inflation surged 13.6% in 2021 and 2022, thanks to the massive

unwarranted spending binge by the U.S. government, the price of gold dropped


Turns out that the best hedge against inflation are old-fashioned, high-quality

stocks over the long term. Since 1926, the rolling annual 30-year S&P 500 return

has averaged between 8% and 15%, easily outpacing the return of gold. Warren

Buffet didn’t become one of the world’s richest men by buying lots of gold. He

succeeded by buying more and more great American companies.

Now, I own a little bit of gold myself for some diversification during bear markets

and a hedge against economic panics. During the COVID-19 pandemic bear

market, when stock prices dropped 34%, the price of gold only fell 2.5%.

So, don’t let those commercials fool you. Own some gold if it makes you feel

safer, but don’t expect it to make you rich.

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