Gold as a hedge against inflation

The mechanism: money can be printed, gold can't

Inflation, at its core, is too much money chasing too few goods. When the supply of currency grows faster than the supply of real things, each unit buys less. Gold sits outside that loop. Its supply can't be expanded by policy, so as more dollars are created, the same amount of gold tends to command more of them.

This is why gold has historically risen in nominal terms during sustained inflation and currency debasement. It's a tendency rooted in supply mechanics — not a guarantee, and not a precise month-to-month tracker of the CPI.

The 1971 line in the sand

When the U.S. ended dollar convertibility into gold in 1971, the dollar became a pure fiat currency. Since then it has lost roughly 87% of its purchasing power to inflation (approximate, cumulative). Over that same long stretch, gold has risen substantially in dollar terms. The comparison illustrates the asymmetry: the thing that can be printed leaked value; the thing that can't held it.

Hedge, not a return engine — the honest limits

Gold is best understood as insurance, not a growth investment. Over the very long run it has roughly preserved purchasing power rather than compounded like equities. In any given year it can fall, sometimes sharply, and it pays no dividend or interest. The case for it is diversification and protection against currency and tail risk — not outperformance.

That's why disciplined investors size it as ballast: a modest allocation that smooths the ride, rebalanced over time. Past performance never guarantees future results, and these figures are approximate macro context — not a forecast.

• ✦Strength: tends to hold real value through inflation and currency debasement.
• ✦Limit: no yield, and short-term moves can be volatile.
• ✦Right frame: insurance and ballast, sized modestly — not a growth bet.