Beyond CPI: Gold as a strategic inflation hedge

World Gold Council/Staff/April 2021

overlay line chart showing gold and M1 money supply drawn in log scale 1970 to present

Sources: St. Louis Federal Reserve, Federal Reserve Board of Governors, ICE Benchmark Administration
Click to enlarge

“A broader metric than CPI may be more adequate to measure true inflation. [I]f we use a broader measure than CP the evidence suggests a stronger and more consistent relationship [between gold and inflation]. This has two important implications: gold is a global asset and a hedge against not just the price of goods and services but also the erosion of purchasing power in general – be that against property, collectibles, or financial assets that are excluded from CPI indices. It is also a hedge against the debasement of a currency should the value of that currency be slowly eaten away as supply is increased…Money supply is closely linked to nominal GPD growth and may reflect this important consumption dynamic as well as the inflation dynamic.”

USAGOLD note: We cited this report in yesterday’s DMR and repost it here for those who may have missed it. All in all, we see this approach as rather ingenious. With inflationary concerns moving to the forefront, a handful of analysts have made strained attempts to show that gold is not truly an inflation hedge – an endeavor that generally requires the manipulation of timelines and statistics to make the point. The World Gold Council takes an approach in this study that uniquely circumvents the issue by acknowledging the post-2008 era of quantitative easing. The chart above illustrates the point the World Gold Council makes in the snippet above. It is drawn to log scale and, as a result, provides a truer representation of monetary growth and its relationship to the gold price.

 

 

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