By Tim Courtney, Chief Investment Officer

Gold has quietly been having one of its best years in a long time. This could be because inflation has stubbornly remained above the Fed’s target and many investors are concerned it could reignite. The metal is up 40% in 2025 through September 22nd, making it the strongest broad asset class this year.¹ How should we think about gold, and whether or not to buy some?

Gold has been referred to as a “fear” asset – something that often performs well when investors in other assets begin to panic.² We all probably recall seeing gold commercials that claim gold is a safe haven against uncertainty and volatility. But over the last 50 years, its volatility (19 annualized standard deviation) has actually been higher than that of the stocks in the S&P 500 Index (15 annualized standard deviation) .³

Gold does have a long track record as a medium of exchange and tends to rise alongside inflation.⁴ Comparing today’s prices for basic goods/services like bread and unskilled labor to those of hundreds of years ago we see, in terms of gold (ounces), prices have remained fairly constant.⁵ While gold’s relationship with inflation tends to be strong over long periods of time, it is quite weak over shorter periods. In any particular year, gold and inflation can move in very different directions. Like in 2021 when CPI inflation sped up to 7.1% but gold finished -3.6%, or this year when inflation is up 3% but gold is up 40%.⁶ 

Gold can be useful as a long-term hedge against inflation. Because of this, we place gold in the same category (real assets) as real estate and commodities, which also have ties to inflation. But we view gold as speculative. Unlike the use of commodities, its utility is very limited and unlike real estate, it doesn’t produce cash flows. Gold’s price is solely determined by supply and demand – i.e., it is worth what someone else says it is worth.⁷  

In this regard, gold is similar to currency and crypto. These generate no utility or cash flows and so are worth what someone else says they are worth.⁸ But gold and currency have future expected returns tied to inflation. We expect gold to have a return close to inflation over long periods and for government currency to have a negative return equal to inflation. For crypto, though, its expected return is unknown. Its return behavior is not tied to inflation, utility, or cash flows. While several people have tried, there is no reliable or accepted conceptual method for valuing or estimating returns for this type of asset. 

It’s natural for investors to ask whether governments can be trusted as stewards of currency and whether alternatives like crypto or gold can provide protection. Both crypto and gold are speculative, but one has a historical tie to inflation, along with other real assets. Because of this, we generally view a portfolio weight of up to 5% in gold and other real assets to be reasonable as an inflation hedge and complementary to a diversified mix of productive assets. If you have questions about gold or other ways to hedge inflation risks, please contact your advisor.

Sources

1. Reuters (9/2/25) - Explainer: Gold's record-breaking rally: who's keeping it going?
2. Fortune (9/22/25) - Gold hit a new record high—and that’s an indicator of fear lurking within the stock market, Deutsche Bank says
3. DFA Returns (8/31/25) – S&P 500 Index and Gold Spot Price since 1/1/1970
4. CBS News (1/21/25) - What is the gold standard?
5. Investopedia (1/29/25) - Has Gold Been a Good Investment Over the Long Term?
6. DFA Returns (8/31/25) – Gold Spot Price and US Consumer Price Index
7. ABC News (2/25/25) - How is the price of gold determined by sellers?
8. Investopedia (8/28/25) - Cryptocurrency Explained With Pros and Cons for Investment

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S&P 500® Index (S&P 500®) is widely regarded as the best single gauge of large-cap U.S. equities. The index includes 500 leading companies and covers approximately 80% of available market capitalization.