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
5%.
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.