Chart of the Month: Gold and Inflation

  • 07 September 2020
  • 5 mins reading time

The relationship between gold and inflation

Data shown: The spot price of an ounce of gold and US inflation as measured by the consumer price index. Source: Schroders Personal Wealth/ Bloomberg, 25 August 2020.

As far as investments are concerned, gold can be said to serve a dual purpose. When inflation or market turbulence rise, so does the price of gold. This isn’t a fixed truism, but by and large it has tended to be the case.

The chart shows that the demand for gold drove prices sharply higher during the financial crisis of 2008, and again during the Covid-19 pandemic this year. In between times, the price of gold has, more or less, reflected the general trend in inflation.

Once the crisis of 2008 subsided some years later, the price of gold lost some of its gains. Today, the price of gold is extremely high compared to the past 30 years. This might help to explain why we have sold some of our gold holdings to help ensure that we can secure profits from that investment allocation.

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Forecasts of future performance are not a reliable guide to actual results in the future; neither is past performance a reliable indicator of future results. The value of investments, and the income from them, may fall as well as rise and cannot be guaranteed and the investor might not get back their initial investment.

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