Gold Is No Longer a Good Hedge Against Bad Times
The precious metal has become just another cyclical asset, no longer a useful harbinger of social and economic collapse.
Not so precious anymore.
Photographer: Yuriko Nakao/Bloomberg via Getty Images
Those who remember or read about the 1980s may consider the price of gold to be a highly dramatic variable. During the postwar Bretton Woods years, the price of gold was pegged at $35 an ounce, but after Richard Nixon severed the dollar’s final link to gold in 1971, prices soared to more than $800 an ounce by 1980. Fortunes were made, goldbugs proliferated and the price of the precious metal became a daily fascination. Many commentators considered the high price of gold to be a harbinger of disaster for both fiat currency and Western civilization.
Even if it’s trading around a record high of $2,000 these days, gold is a little boring and likely to remain so for the foreseeable future. According to a new study from the National Bureau of Economic Research, gold prices have followed some fairly standard principles since at least 1990. To put it simply, gold prices decline when real interest rates rise. That is because gold itself has zero direct yield, so at higher interest rates the opportunity cost of holding gold goes up.1 In this regard, gold is like many other assets, including crypto, tech companies, and real estate.