An Inflation Hedge
Since the beginning of capital markets, gold has proved itself as a reliable inflation hedge. Consider this—the value of one ounce of gold in 1920 (around $20) would buy you a nice suit. Today, one ounce of gold would still buy a very nice suit, but that $20 bill won’t. Data shows that with inflation between 2%–5%, gold’s price rose an average of 8% per year. As world economies grappled with a hyper-inflationary environment as a result of the COVID 19 pandemic, gold has continued to reach record highs.
A Gram of Gold vs $10
in USD
Sources: Federal Reserve Bank of St. Louis, World Gold Council. This is based on the annual average price in U.S. dollars of a loaf of white pre-packaged regular bread that weighs 453.6 grams. The value of 1 gram of gold is the annual average price in USD in the designated year.
The Value of Gold vs Inflation
in USD
Sources: Federal Reserve Bank of St. Louis, World Gold Council. This is based on the annual average price in U.S. dollars of a loaf of white pre-packaged regular bread that weighs 453.6 grams. The value of 1 ounce of gold is the annual average price in USD in the designated year.
The Problem with Fiat Currency
A fiat currency (like the US dollar) is government-issued and not backed by a physical commodity. Its value relies on supply, demand, and the stability of the issuing government. Fiat currencies are vulnerable to inflation and particularly risky during times of hyperinflation. With growing national debts around the world, the risk of governments diluting the buying power of currencies to service eyewatering levels of debt is a growing concern. Public confidence is key, and actions like overprinting can erode trust in the currency.
Gold and Rising National Debt
in USD
Sources: World Gold Council, Federal Reserve Bank of St. Louis