by Robert E. Quittner, Jr. CFP® & CMFC™
Investment Advisor Representative
[email protected]
The advisors at Franklin Retirement Solutions consume a significant amount of economic and financial news from various sources. Generally, when a topic percolates to the top of the news cycle it will often come up in client meetings.
Gold has been in the news quite often in the last month and I had already planned to cover it in my article this week. As I was eating my breakfast yesterday morning and scanning the news I came across a Bloomberg News article titled “Gold Pares Gains as Bessent Plays Down Revaluing US Reserves”. The article went on to state that “The precious metal hit successive records this year after climbing 27% in 2024”. I always like to step back and take an analytical look at these sometimes-hyped statements and put them in perspective.
Proponents of gold consider it a good hedge against inflation. Historically, when inflation rises and the value of national currencies declines, gold tends to retain or increase in value. They argue this happens because of the following factors:
- Safe-Haven Asset – During economic uncertainty and inflationary periods, investors often turn to gold as a reliable store of wealth.
- Store of Value – Gold has intrinsic value and is not directly tied to any currency, making it less affected by devaluation.
- Limited Supply – Unlike paper money, gold cannot be printed or artificially increased in supply.
- Inverse Relationship with the Dollar – When the U.S. dollar weakens due to inflation, gold prices often rise.
However, gold is not a perfect hedge. In some cases, its price may not immediately react to inflation, and it does not generate income like stocks, bonds, or other investible assets. Discussing all four of the factors above is well outside the scope of our brief Friday newsletter so I will focus on the most important point for most people which is gold as a “Safe Haven Asset” during inflationary periods.
The Consumer Price Index (CPI) measures inflation as expressed by the average change over time in the cost of consumer goods and services. The year-over-year percentage change indicates how much prices have increased or decreased compared to the same month in the previous year.
Let’s look at CPI (inflation) over the last 5 years.
- January of 2020 CPI stood at 2.5%
- May of 2020, it dropped to a low of .10%
- June of 2022, it increased to a high of 9.10%
- September of 2024, back down to 2.4%
Also to put the recent CPI highwater mark in perspective the last time it was that high was in November of 1981 or 41 years ago!
Let’s look at how gold performed during this period in comparison with the stock market as measured by the S&P 500 Total Return (TR) Index:
- Time Period – 01/2020 to 06/2022 or the peak of recent inflation.
- Gold +11.27%
- S&P 500TR +23.08%
- Time Period – 01/2020 to 12/2024
- Gold +70.17%
- S&P 500TR +98.78%
- Time Period – recent 10 years from 2/2015 – 2/2025
- Gold +135.07%
- S&P 500TR +248.60%
As the Bloomberg article mentioned, gold was up 27% in 2024 but how did a few other market sectors perform last year?
- Communication Services +40.23%
- Information Technology +36.61%
- Financials +30.50%
- Consumer Staples +30.14%
Gold’s recent surge may capture headlines, but its long-term performance suggests that investors should view it as one piece of a broader strategy rather than a guaranteed hedge against inflation. At times we held gold in our portfolios and did so for a period in 2020. And just remember, all that glitters is not gold.
Stay warm and have a great weekend!
Rob