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Going for gold?

Gold has a low correlation to stock markets but is not necessarily a good hedge against inflation
Going for gold?
  • Gold has a low correlation to stock markets and can hold up well during times of crisis
  • It is not always very defensive or a good hedge against inflation
  • A cheap and fairly accurate way to track the gold price is an ETC that holds gold

At last month’s Jackson Hole meeting, Federal Reserve chair Jay Powell gave the strongest indication yet that monetary policy would start to reverse course by the end of the year. The economy had met the test of “substantial further progress” towards the US central bank’s inflation objective, he said. This may create volatility in the stock market and its effects could also have an effect on the price of gold.

Many arguments have been made in favour of holding gold, including that it offers protection against inflation, is a store of value at times of crisis and is a hedge against stock market volatility. In reality, while gold has exhibited all of these qualities at various points, it has proved an unreliable friend. In 2020, for example, its price fell in the second half of the year in spite of rising inflation.

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