Tuesday, 26 February 2013

Gold and Inflation

Yesterday I posted a graph showing how gold's hockey stick rise doesn't correlate well with the relatively linear change in interest rate.  Another common statement is that gold protects against inflation.  While some have argued differently, CPI is still a well accepted general measure of inflation even though it has some flaws.

So below is the chart showing gold price plotted against CPI.  Again, there's hardly anything correlating the recent rise in gold vs inflation.  Future inflation?  That's harder to argue but regardless, the case for gold as an inflation hedge may not as strong as many would think.  This data set doesn't extend back as far as when US was hitting massive inflation in the 70s but other studies have shown similar issues with the inflation story.

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