GoldForecast.com editors Gary Wagner and CPM Group managing director Jeff Christian said gold is a long-term inflation hedge and safe haven. Both Wagner and Christian believe that, under certain conditions, gold is also a hedge against stock market volatility.

Gold can be a long-term hedge against inflation

On the idea that gold's role as an inflation hedge means its price should follow inflation levels, CPM Group managing director Christian explained that gold does not hedge on a short-term basis and does not rise while inflation remains in the low single digits .

“The correlation between changes in inflation and changes in the price of gold is 9%,” he explained. “…Gold works well against hyperinflation, but not particularly well against 1% to 3% inflation.” Hyperinflation is usually defined as a monthly price increase of at least 50%.

While Wagner agreed with Christian's analysis, he added that gold is a long-term inflation hedge. "Gold is an excellent hedge against inflation, but it's not sensitive to short-term volatility," he said. "But what we've seen over time is that it has the same purchasing power."

Wagner gave an example to illustrate his point. "In 1910, with an ounce of gold, you could spend a night at the Plaza Hotel...you could buy a nice suit...and a steak dinner," he said. According to Wagner, an ounce of gold is still today The same items can be purchased.

Gold is a safe-haven asset as U.S. stocks tumble

Christian defines safe-haven assets as those with a low correlation to stocks and bonds, protecting investors from volatility. "Over the long term, the overall correlation between gold and equities is negative 4-5%," noting that gold is a long-term safe asset.

U.S. stocks have experienced a massive sell-off, with the S&P 500 down 13% so far this year.

Christian added that these recent events are a testament to gold's safe-haven properties. "The second quarter is not good for gold and silver, they will likely fall," he said.

He said: "But if you look at the first quarter...Silver was the best performing asset out of 11 asset classes, up 7.7% in the first quarter. Gold was second at 6.6%. If someone told you that gold and silver didn't play a role," he said. The role of protecting the value of the portfolio, that's the worst aspect of American education."

Overall, U.S. stocks and gold prices have moved in opposite directions, Wagner said. However, he highlighted QE as an exception to this trend. "If you look back to 2008, when they injected a lot of liquidity into the market ... U.S. stocks and gold were going up," he said.

Spot Gold Daily Chart
GMT+8 at 13:01 on June 7, spot gold was reported at $1842.07/oz

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