Gold as an inflation hedge? Well, sort of…

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LONDON (Reuters) – Rising inflation has put gold back on the radar for investors looking to protect themselves from emerging price pressures, but history suggests its reputation has been overstated.

FILE PHOTO: Gold bars at the Austrian Gold and Silver Separating Plant ‘Oegussa’ in Vienna, Austria, March 18, 2016. REUTERS/Leonhard Foeger/File Photo

The experience of the last 50 years suggests gold performs better as a hedge against inflation shocks – like the spike caused by surging oil prices in the late 1970s and early 1980s – than the widely anticipated grind higher currently seen.

“If you strip out the 1970s, you find the relationship between gold and inflation is quite weak,” Brian Lucey, professor of international finance at Trinity College Dublin, said.“That is because you have a very different inflation regime in the late 1980s and 1990s than you had in the 1970s.”

“That was a time when inflation rates of double digit and higher were the norm….



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