By Michelle Smith — Exclusive to Gold Investing News
Investors put money into gold for a number of reasons, including as a hedge against infl a tio n. Given its soaring prices in recent years, many would say that gold is the ultimate inflation hedge. Yet, the Cre dit Suisse Global Investment Returns Yearbook 2012 may prompt investors to rethink that position, as it argues that gold can fail and there's history to prove it.
Finding assets that protect purchasing power is the primary concern of investors aiming to hedge. These individuals are focused on stability as opposed to returns that not only keep in step with inflation, but also outpace it. The Credit Suisse Yearbook says that if gold were a reliable hedge against inflation, its real price would be relatively unwavering. However, gold is volatile and its purchasing power fluctuates. With gold's bull run spanning more than a decade, some investors may be unaware, some may have forgotten, or others may even deem irrelevant the metal's broader history, as it often seems that we are experiencing unprecedented economic conditions. But, covering 112 years and 19 countries, the Credit Suisse report brings times passed back into focus and reacquaints investors with the reality that gold has not always traveled up. On the contrary, 1980 to 2001 was a period of significant decline for the metal, which lost four fifths of its value during that time. Prices during that 21 year span dropped from $850 to about $300, which translates into a loss of value exceeding 60 percent. To put this into perspective, one only needs to imagine the impact such a decline likely had on retirees who may have had significant portions of their wealth stored in the form of gold.