As inflation rises, what happens to gold?
With inflation soaring to 30-year highs, some investors have been disappointed with gold’s performance. While gold has outperformed shares, bonds and TIPS the past six months, its recent showing owes to the Russia and Ukraine crisis. This has caused some to wonder if bitcoin is a better inflation hedge than gold. And wonder what happens to the gold price if Russia fears subside.
To discuss gold’s performance, we were joined by Jaspar Crawley at the World Gold Council, the peak gold industry group.
Jaspar said that one reason gold is struggling in this period of high inflation is how well it did in previous years. In 2019 gold returned about 19%, and in 2020 it returned 26%. That’s around 50% in two years. As such, a lot of investors are selling gold and taking profits, he said.
He added that it is still early in the inflationary cycle and gold remains, historically, one of the best-performing assets when inflation is high. He said: “when inflation is over 3% in Australia, the average returns of gold have actually been about 20% nominal returns.”