Is Gold an Inflation Hedge?<br />
Gold as Inflation Hedge<br />Gold is often regarded as a perfect inflation hedge<br />Let’s discuss this issue by answerin...
Gold as Inflation Hedge<br />Definition and Measurement of Inflation<br />Inflation is an increase in prices for goods and...
Gold as Inflation Hedge<br />This index is reported monthly by the US Bureau of Labour Statistics and takes into account t...
Gold as Inflation Hedge<br />Of course, the CPI basket of goods does not correspond with the goods and services acquired b...
Gold as Inflation Hedge<br />Keynesian theory<br />Keynes tried to explain inflation with the theory of income determinati...
Gold as Inflation Hedge<br />Cost-push theory<br />This third approach assumes that products and services are basically de...
Gold as Inflation Hedge<br />Structural theory<br />Oneversion of this theory proposes focuses on developing countries<br ...
Gold as Inflation Hedge<br />First, gold supply has been quite stable over time<br />In average, mined gold increased by 1...
Gold as Inflation Hedge<br />Second, during the gold standard, when the currencies where pegged to gold and their value wa...
Gold as Inflation Hedge<br />Third, due to inflation, all currencies lose their value over time<br />This becomes evident ...
Gold as Inflation Hedge<br />The value of gold has remained remarkably stable for centuries<br />In 1900 the gold price st...
Gold as Inflation Hedge<br />Another illustrative example is to see what one can buy for one ounce of gold<br />During Rom...
Gold as Inflation Hedge<br />Relative to gold, all currencies have lost their purchasing power, whereas this precious meta...
Gold as Inflation Hedge<br />What is the downside of gold? Of course, gold neither pays dividends nor interests and the mi...
Gold as Inflation Hedge<br />Or as Warren Buffett put it aptly<br />“Gold is a way of going long on fear, and it has been ...
Upcoming SlideShare
Loading in …5
×

Gold as inflation hedge

1,221 views

Published on

Gold as inflation hedge

0 Comments
4 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
1,221
On SlideShare
0
From Embeds
0
Number of Embeds
5
Actions
Shares
0
Downloads
0
Comments
0
Likes
4
Embeds 0
No embeds

No notes for slide
  • This template can be used as a starter file to give updates for project milestones.SectionsRight-click on a slide to add sections. Sections can help to organize your slides or facilitate collaboration between multiple authors.NotesUse the Notes section for delivery notes or to provide additional details for the audience. View these notes in Presentation View during your presentation. Keep in mind the font size (important for accessibility, visibility, videotaping, and online production)Coordinated colors Pay particular attention to the graphs, charts, and text boxes.Consider that attendees will print in black and white or grayscale. Run a test print to make sure your colors work when printed in pure black and white and grayscale.Graphics, tables, and graphsKeep it simple: If possible, use consistent, non-distracting styles and colors.Label all graphs and tables.
  • What is the project about?Define the goal of this projectIs it similar to projects in the past or is it a new effort?Define the scope of this projectIs it an independent project or is it related to other projects?* Note that this slide is not necessary for weekly status meetings
  • * If any of these issues caused a schedule delay or need to be discussed further, include details in next slide.
  • Duplicate this slide as necessary if there is more than one issue.This and related slides can be moved to the appendix or hidden if necessary.
  • Gold as inflation hedge

    1. 1. Is Gold an Inflation Hedge?<br />
    2. 2. Gold as Inflation Hedge<br />Gold is often regarded as a perfect inflation hedge<br />Let’s discuss this issue by answering the following three questions: <br />First, what is inflation <br />Second, what are the reasons for inflation? <br />Third, is gold an effective hedge against inflation? <br />
    3. 3. Gold as Inflation Hedge<br />Definition and Measurement of Inflation<br />Inflation is an increase in prices for goods and services of an economy over a certain period<br />In the United States inflation is mostly measured as an annual percentage increase of the Consumer Price Index (CPI)<br />
    4. 4. Gold as Inflation Hedge<br />This index is reported monthly by the US Bureau of Labour Statistics and takes into account the price for a basket of goods<br />If the money required purchasing these good increases from $100 to $125 within one year, then the annual inflation rate is 25%<br />
    5. 5. Gold as Inflation Hedge<br />Of course, the CPI basket of goods does not correspond with the goods and services acquired by each individual<br />Therefore, the ‘personal inflation rate’ is lower or higher than the official one<br />
    6. 6. Gold as Inflation Hedge<br />Keynesian theory<br />Keynes tried to explain inflation with the theory of income determination<br />Inflation does not directly influence prices<br />It arises because consumers attempt to buy more goods and services than that can be supplied at full employment levels<br />
    7. 7. Gold as Inflation Hedge<br />Cost-push theory<br />This third approach assumes that products and services are basically defined by their costs<br />The price-wage spiral is responsible for this increase<br />Here employers demand higher wages, which will then lead to higher production costs and eventually pushes again wage increase demands<br />
    8. 8. Gold as Inflation Hedge<br />Structural theory<br />Oneversion of this theory proposes focuses on developing countries<br />Here, inflation is caused by the gap between imports and exports<br />Imports happen fast than the country’s citizens are able to pay for them<br />Also, imports outcompete local goods<br />This leads to an increased pressure on the local currency and an upward pressure on prices, which is inflation.<br />
    9. 9. Gold as Inflation Hedge<br />First, gold supply has been quite stable over time<br />In average, mined gold increased by 1.5% over the last 100 years (including several times during which gold output increased due to wars and a reduction of demand for gold)<br />The finite amount of gold helps to keep the annual addition of gold at low levels<br />
    10. 10. Gold as Inflation Hedge<br />Second, during the gold standard, when the currencies where pegged to gold and their value was determined by the amount of gold the countries had in their vaults, national inflation increased usually by not more than an annual two per cent<br />(However, a comparison of the gold standard time with the post gold standard period is invalid if only the different monetary system is considered.) <br />
    11. 11. Gold as Inflation Hedge<br />Third, due to inflation, all currencies lose their value over time<br />This becomes evident when comparing the purchasing power of $100 dollar today, with ten, 50 and hundred years ago.<br />However, gold retains its value, or even increases it.<br />
    12. 12. Gold as Inflation Hedge<br />The value of gold has remained remarkably stable for centuries<br />In 1900 the gold price stood at $20.67 per fine ounce<br />End of December, the price was above $700 per ounce<br />And in the first quarter of 2011 gold has reached a record of $1500<br />
    13. 13. Gold as Inflation Hedge<br />Another illustrative example is to see what one can buy for one ounce of gold<br />During Roman times it was possible to buy a suit of expensive clothes for one ounce<br />During the great depression the same was true. How is it now? <br />It is still possible to buy a fine, tailor-made suite for one ounce of gold! <br />
    14. 14. Gold as Inflation Hedge<br />Relative to gold, all currencies have lost their purchasing power, whereas this precious metal has not only kept, but even gained value<br />
    15. 15. Gold as Inflation Hedge<br />What is the downside of gold? Of course, gold neither pays dividends nor interests and the might be better inflation hedges (depending on the criteria taken into account)<br />Also, a look at the gold chart shows that gold does not always increase in price<br />There are some bearish periods as well<br />
    16. 16. Gold as Inflation Hedge<br />Or as Warren Buffett put it aptly<br />“Gold is a way of going long on fear, and it has been a pretty good way of going long on fear from time to time. But you really have to hope people become more afraid in a year or two years than they are now. And if they become more afraid you make money, if they become less afraid you lose money, but the gold itself doesn’t produce anything.”<br />

    ×