Explore gold's inflation hedging properties
Investors around the world recognise gold as one of the most reliable hedges against inflation. The value of gold, in terms of the real goods and services it can buy, has remained largely stable for decades, if not centuries. In 1900, the gold price was US$20.67/oz. And, in the five years to end-December 2011, the price of gold averaged around US$1,066.6/oz. Prices in 2011 have consistently remained well above the US$1,300/oz level and, indexed to 1900 prices, gold has held its value better than any other currency. Gold’s real price has endured a century characterised by sweeping change, inflation and repeated geopolitical shocks. Despite all challenges, it has retained its purchasing power. In contrast, the real value of most currencies has generally declined.
A growing body of research supports gold's reputation as a protector of wealth against the ravages of inflation. Numerous economists have demonstrated that, over the long term, through both inflationary and deflationary periods, gold has consistently maintained its purchasing power.
Of course experience has shown that gold can deviate from its long-run inflation-hedge price. During a sustained buoyant period, as is currently the case, it can even offer opportunities for impressive returns.