Have you Ever Wondered If Gold is a Good Hedge Against Inflation? For centuries, gold has been viewed as a safe-haven asset, offering protection against inflation and economic uncertainty. Many investors believe that when the purchasing power of money declines, gold retains its value, making it a strong hedge against inflation.
But does gold still serve this purpose in today’s economy? And how does it compare to other inflation hedges like stocks, real estate, and commodities? Even Warren Buffett, one of the world’s most successful investors, has questioned the value of gold as an investment.
Let’s explore whether gold is still a good hedge against inflation, its historical performance, and what alternatives might be better for investors.
Why Gold Has Been Considered a Hedge Against Inflation
The idea that gold protects against inflation comes from its history as a store of value. Unlike paper currency, which can lose value due to inflation, gold is a tangible asset with limited supply.
Here’s why gold has traditionally been seen as a strong hedge:
✔ Limited Supply: Central banks can print money, but they can’t create more gold.
✔ Universal Acceptance: Gold has been used as currency and a store of wealth for thousands of years.
✔ Safe Haven During Uncertainty: When inflation rises, investors often seek assets that hold value, and gold has historically been a go-to option.
But does this hold true in modern markets? Let’s look at how gold has actually performed during inflationary periods.
Gold’s Performance During Recent Inflationary Periods
While gold has a reputation for protecting against inflation, its actual performance has been mixed.
1. The 1970s – Gold Soars During High Inflation
The 1970s were a golden decade for gold. Inflation was soaring, peaking at 13.5% in 1980, and gold prices skyrocketed from about $35 per ounce in 1970 to over $800 per ounce in 1980.
✔ Conclusion: Gold was an excellent inflation hedge during this period.
2. The 2000s – Moderate Inflation, Strong Gold Performance
In the 2000s, inflation remained relatively mild (around 2-4% per year), but gold still performed well due to financial crises and increased demand from emerging markets. Gold rose from around $300 per ounce in 2000 to nearly $1,900 in 2011.
✔ Conclusion: Gold performed well, but this was largely due to financial instability, not inflation alone.
3. The 2010s – Low Inflation, Gold Stagnates
From 2012 to 2018, gold actually declined in value, falling from around $1,800 per ounce to $1,200. Inflation remained low during this time, and the stock market provided better returns.
✖ Conclusion: Gold was not a strong hedge against inflation in this period.
4. 2021-2023 – High Inflation, Disappointing Gold Returns
During the post-COVID inflation surge (2021-2023), inflation rose above 9%—the highest in decades. Many expected gold to rally, but instead, it struggled. While gold did rise modestly, it underperformed stocks and commodities.
✖ Conclusion: Gold’s performance was weaker than expected during this high-inflation period.
So while gold has occasionally been a strong hedge against inflation, it is far from a guaranteed inflation protector.
Warren Buffett’s View on Gold
Warren Buffett, the legendary investor and CEO of Berkshire Hathaway (BRK.B), has been highly critical of gold as an investment.
One of his most famous quotes about gold is:
“Gold gets dug out of the ground in Africa or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility.”
Buffett believes that productive assets—such as stocks and businesses—are superior to gold because they generate cash flow. Unlike stocks or real estate, gold doesn’t pay dividends, earn interest, or produce goods and services.
However, in 2020, Berkshire Hathaway surprisingly bought shares of Barrick Gold (GOLD), a gold mining company. This move indicated that Buffett (or his portfolio managers) may see some value in gold-related investments—but not necessarily in gold itself.
Gold vs. Other Inflation Hedges
If gold isn’t a perfect inflation hedge, what other options do investors have?
1. Stocks (Better Long-Term Inflation Hedge)
✔ Historically, stocks have outperformed gold over long periods.
✔ Many companies raise prices (and profits) during inflation, helping stock prices keep pace.
✔ Examples: Apple (AAPL), Microsoft (MSFT), Coca-Cola (KO), Johnson & Johnson (JNJ).
2. Real Estate (Hedge Through Rising Property Values & Rents)
✔ Property values and rental income often rise with inflation.
✔ Real estate investment trusts (REITs) like Simon Property Group (SPG) can provide inflation protection.
3. Commodities (Can Outperform Gold During Inflation)
✔ Oil, agricultural products, and industrial metals often rise with inflation.
✔ Example: ExxonMobil (XOM) benefits from rising oil prices.
4. Treasury Inflation-Protected Securities (TIPS) (Best Low-Risk Option)
✔ TIPS are government bonds specifically designed to protect against inflation.
✔ Unlike gold, TIPS pay interest and adjust for inflation.
Risks & Limitations of Gold as an Inflation Hedge
Even though gold has a strong reputation, it doesn’t always protect against inflation. Here’s why:
✖ Gold Can Be Highly Volatile – Prices fluctuate wildly, making it unreliable for short-term protection.
✖ Gold Doesn’t Generate Cash Flow – Unlike stocks, bonds, or real estate, gold doesn’t produce income.
✖ Gold Can Underperform in Certain Inflationary Periods – As seen in 2021-2023, other assets sometimes do better.
✖ Opportunity Cost – Money in gold may be better invested in stocks, real estate, or productive assets.
Should Investors Still Buy Gold?
While gold isn’t a perfect hedge against inflation, it can still be useful in certain cases:
✔ For Portfolio Diversification: A small allocation (5-10%) can add stability.
✔ For Crisis Protection: Gold often performs well during financial crises.
✔ For Hedging Against Currency Decline: If the U.S. dollar weakens, gold can benefit.
However, most long-term investors may be better off focusing on stocks, real estate, or TIPS rather than relying on gold alone.
Final Thoughts
Gold has a mixed track record as an inflation hedge. While it has protected wealth in some high-inflation periods (like the 1970s), it has underperformed stocks and other assets in recent years. Warren Buffett has long criticized gold for its lack of productivity, favoring businesses that generate cash flow.
For investors seeking inflation protection, stocks, real estate, commodities, and TIPS may offer better alternatives. Gold can still play a role in a diversified portfolio, but it should not be the primary inflation hedge.
Happy Investing!