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Gold and inflation

Gold is not perfect protection against rising inflation. Investors should hold it for other reasons.
Gold and inflation

Inflation is likely to rise this year. Economic forecasters expect CPI inflation to rise from 0.3 per cent in November to 1.9 per cent by year end. Which poses the question: should we hold gold as a hedge against this rise and the risk of a bigger increase? The answer is: not necessarily.

Certainly, gold has been a fantastic protection against inflation over the very long run. Claude Erb and Campbell Harvey point out that a Roman centurion in the time of the Emperor Augustus (who ruled from 27BC to 14 AD) was paid 38.6 ounces (oz) of gold a year. That’s just over £50,000 in today’s money – which is only slightly more than an experienced captain in the British Army gets. Gold, therefore, has kept pace with 2000 years of wage inflation. It’s been a fantastic long-term store of value.

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