This website uses cookies in order to improve user experience. If you close this box or continue browsing, we will assume that you are happy with this. For more information about the cookies we use or to find out how you can disable cookies, see our Cookies Notice.

Chart of the week

Is gold really a hedge against inflation?

Quite often, gold is mentioned as a hedge against inflation. Historical correlations don’t support that theory. Over the last few decades, inflation moved up and down, and gold moved up and down, too. Looking at the past ten years, for example, inflation is lower today, while gold trades higher. Also in between, there was no clear pattern that gold prices increased when inflation was rising, or vice versa. And, even in inflation adjusted terms, the gold price has been quite volatile.

However, there is a clear correlation between the yield on U.S. inflation linked bonds (so-called TIPS), and gold prices. Nominal bond yields can be split up into a real yield, plus an inflation expectation component. If gold indeed were an inflation hedge, prices should correlate with inflation expectations. Instead, they tend to correlate with real yields, as our chart of the week demonstrates.

Rising real yields, and hence falling TIPS prices, go hand-in-hand with falling gold prices, while falling real yields (rising bond prices) correspond with gold trading up. As real yields typically move with markets’ growth expectations, a gold position works better as a hedge against declining growth expectations than against rising inflation.

Gold price / 10-year TIPS yield

Sources: Bloomberg Finance L.P., Deutsche Asset Management Investment GmbH, as of July 27, 2017

Related Articles

Jul 03, 2018 Investment Traffic Lights

Investment Traffic Lights

Our tactical and strategic view

Jun 04, 2018 Investment Traffic Lights

Investment Traffic Lights

Our tactical and strategic view

May 24, 2018 Americas CIO View

Americas CIO View

Oil near normal, Energy profits still below, but limited upside

May 03, 2018 Investment Traffic Lights

Investment Traffic Lights

Our tactical and strategic view

Apr 17, 2018 CIO View QuarterlyForecasts

Our forecasts

All forecasts at a glance

Apr 13, 2018 Chart of the week

Chart of the week

Don't read too much into recent increases in the oil price

Apr 03, 2018 Investment Traffic Lights

Investment traffic lights

Our tactical and strategic view

Mar 01, 2018 Investment Traffic Lights

Investment traffic lights

Our tactical and strategic view

Feb 06, 2018 Investment Traffic Lights

Investment traffic lights

Our tactical and strategic view

Jan 26, 2018 Chart of the week

Chart of the week

Why the recent rally on Wall Street might well continue

Jan 05, 2018 Investment Traffic Lights

Investment traffic lights

Our tactical and strategic view

Dec 08, 2017 Investment Traffic Lights

Investment traffic lights

Our tactical and strategic view

Dec 07, 2017 Forecasts

Our forecasts

All forecasts at a glance

Nov 08, 2017 Investment Traffic Lights

Investment traffic lights

Our tactical and strategic view

Oct 24, 2017 Forecasts

Our forecasts

All forecasts at a glance

Sep 19, 2017 Investment Traffic Lights

Investment traffic lights

Our tactical and strategic view

Aug 18, 2017 Equity

Materially overweight

We keep on riding our young Materials race but on two horses from now on.

Jul 07, 2017 Chart of the week

Chart of the week

For the first time in a while, the number of U.S. oil rigs is declining. No reason to get too excited.

Feedback

Please let us know what you think about this article/page.