Is gold a good hedge against inflation?
The short answer
By its own price record, gold hasn't been a reliable inflation hedge. Since 1970, annual US inflation has stayed between 0% and 13% while gold has swung from a 27% loss to a 119% gain, and in 20 of the 56 years from 1970 to 2025, gold fell while consumer prices rose. Gold also pays no earnings, dividends, or interest, so its return depends entirely on its price the day you sell.
How gold has compared with inflation since 1970
Gold is usually sold as two kinds of protection: a hedge against inflation and a place to hide in a crisis. Price history lets us check both claims.
A hedge should move with the thing it hedges. Gold's price has mostly moved on its own, with swings much larger than inflation's.
- Gold's annual swings have been about 9 times the size of inflation's. The standard deviation of annual changes from 1970 to 2025 was 25.8% for gold and 2.9% for inflation.
- In 20 of the 56 years from 1970 to 2025, gold fell while consumer prices rose. In 1981 prices rose 8.9% and gold lost 23.8%.
- An ounce bought in 1980 didn't break even until 2006.
How gold behaved in a 2026 crisis
When the 2026 Iran war began, gold dropped and stocks climbed. From February 28 through May 29, 2026, gold fell 10.7% while the S&P 500 rose 7.8%, as reported by Dimensional using FactSet and S&P Dow Jones Indices data. That's the opposite of what a crisis hedge is expected to do.
What gold pays while you hold it
Gold pays $0 while you hold it. There are no earnings, dividends, or interest. Its return depends entirely on its price the day you sell.
- Stocks carry a positive expected return because businesses earn profits.
- A positive expected return for gold is hard to support, because it produces nothing.
- Gold has spent time in drawdown more often than the US stock market.
What we use instead
A diversified portfolio already does both jobs. Stocks have outpaced inflation over long stretches because companies earn profits and pass them to their owners.
If you want a direct inflation match, Treasury Inflation-Protected Securities (TIPS) adjust with CPI by design. TIPS are subject to interest-rate and other risks and can lose value.
Takeaway
Gold's price record since 1970 shows it hasn't reliably tracked inflation or protected in a crisis, which is why we rely on a diversified portfolio for both jobs.
Related questions
Does gold protect a portfolio in a crisis?
It didn't in 2026. From February 28 through May 29, 2026, after the Iran war began, gold fell 10.7% while the S&P 500 rose 7.8%, as reported by Dimensional.
How long did gold bought in 1980 take to break even?
An ounce bought in 1980 didn't break even until 2006, comparing December average prices.
What investment is built to track inflation?
TIPS adjust with CPI by design. They're subject to interest-rate and other risks and can lose value.
Sources
Gold: London market price of gold in US dollars, monthly averages (LBMA data via Datahub), annual change measured December to December, 1970–2025. The 1980 recovery figure compares December averages.
Inflation: December-over-December change in the Consumer Price Index for All Urban Consumers (CPI-U, not seasonally adjusted), Bureau of Labor Statistics.
2026 figures (gold −10.7%, S&P 500 +7.8%, February 28 through May 29, 2026) as reported by Dimensional Fund Advisors, "Some Help Gold Has Been" (May 2026), using FactSet and S&P Dow Jones Indices data.
Concept also draws on Dimensional's "Gold Hasn't Been Effective at Tracking Inflation" (May 2024).
Disclosures
This material is provided by Cornerstone Wealth Partners for educational and informational purposes only and does not constitute investment, legal, or tax advice, nor a recommendation to buy or sell any security or commodity. Gold figures are based on the London market price of gold in US dollars, monthly averages (LBMA data via Datahub), with annual change measured December to December; the 1980 recovery figure compares December averages. US inflation is the December-over-December change in the Consumer Price Index for All Urban Consumers (CPI-U, not seasonally adjusted), Bureau of Labor Statistics. The volatility comparison is the standard deviation of annual changes, 1970–2025: gold 25.8%, inflation 2.9%. 2026 figures (gold −10.7%, S&P 500 +7.8%, February 28 through May 29, 2026) are as reported by Dimensional Fund Advisors, "Some Help Gold Has Been" (May 2026), using FactSet and S&P Dow Jones Indices data; concept also draws on Dimensional's "Gold Hasn't Been Effective at Tracking Inflation" (May 2024). Indices are unmanaged and cannot be invested in directly. TIPS are subject to interest-rate and other risks and can lose value. Past performance is not indicative of, or a guarantee of, future results. Investing involves risk, including possible loss of principal. Cornerstone Wealth Partners is a registered investment adviser; registration does not imply any particular level of skill or training.
This article is for educational purposes only and is not personalized investment, tax, or legal advice. Talk with a qualified professional about your situation.