Good as Gold? A look at the Precious Metal as an Asset

March 8, 2023

By Tim Courtney, Chief Investment Officer


With the U.S. in the midst of an inflationary environment we haven’t seen since the late 70s and early 80s,1 there are generations of Americans with no memory or experience living with inflation. As we all attempt to deal with the effects of inflation it’s no surprise that many people are now asking: should I be investing in gold?

Gold has a long history as a store of value. A few characteristics of gold that have allowed it function well as a store of value are its limited supply and physical uniformity. There are several examples of commodity and labor prices today (in gold) being very similar to commodity and labor prices (in gold) recorded as far back as pre-Greek times.2 Because of its impressive and enduring track record, gold is often seen in as an appealing inflation hedge.3

What does all this mean from an investing perspective? First, we should recognize that while gold may help us maintain our purchasing power, it will have a harder time growing our purchasing power. The historical record would lead us to expect that gold’s return should be close to that of inflation. This means 0% in real terms after inflation. Additionally, gold’s return can often be very lumpy with much of its returns occurring when other assets are struggling and markets are weak or uncertain.4

This inconsistent return is important to note because gold often doesn’t work on the investor’s timetable. To be fair, returns that don’t coincide with an investor’s timetable is an issue for most assets. But gold’s very lumpy returns are an even greater challenge. If inflation rises 5% over the course of a year, we shouldn’t expect the value of gold to match that increase. Gold’s return behavior is measured across decades and centuries rather than quarters or years.5 Gold tends to meet inflation over very long periods of time and can run ahead of or trail inflation for decades.

We don’t think it’s a bad idea to own some gold, and most people do own at least a little in wedding rings or other jewelry. But as an inflation hedge, it might take several decades, or a lifetime, from the time you invest in gold for its return to essentially match inflation. As long as an investor understands that, there are plenty of ways to own gold, ranging from various ETFs6 to a wide selection of coins or bars.

Overall, we should appreciate the fact that gold has endured as a store of treasure and value for so many generations. It has generated a return very close to inflation throughout multiple eras. Owning some gold can also provide some benefit as a diversifier within a portfolio. Like anything else though, it’s not a cure-all. Gold itself has few practical uses and doesn’t produce any income or interest. A very long holding period may be required (50 to 100 years) for gold to properly hedge inflation. For shorter periods we believe there are other solutions to consider.

If you have any questions, please contact your Exencial advisor.



  1. The Wall Street Journal (10/13/22) — Inflation sits at 8.2% as core prices hit four-decade high
  2. ETF.com (4/10/13) — Gold has held its value over the last 2,500 years: Fact or fiction?
  3. U.S. News & World Report (9/2/22) — How to invest in gold as an inflation hedge
  4. Seeking Alpha (1/21/22) — Gold: The ultimate hedge against greater volatility
  5. Investopedia (1/20/23) — Has gold been a good investment over the long term?
  6. VettaFi (2/10/23) — Gold ETF list

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