Despite the rise in inflation, the price of gold has fallen. The situation isn’t out of the ordinary. 

It’s a common belief that gold is the best way to protect against inflation. 

Gold has been a store of value for millennia, making it the ultimate money, according to Goldbugs. Despite the fact that this may be the case, a closer look reveals a more confusing picture. 

The graph below illustrates the annualized rate of change in the U.S. Consumer Price Index (CPI) and the U.S. dollar price of Gold (CPI). Those who believe that gold is a hedge against rising consumer prices should expect the gold price to rise in tandem with the CPI. 

(Click on image to enlarge)

Five times since 1980, the opposite has been true, as seen by the green-shaded areas, with the most recent year serving as an excellent illustration. The Gold-Inflation Myth, on the other hand, suggests that gold’s price would fall as the CPI slowed. 

When this wasn’t the case, as shown by the five grey-shaded zones since 1970, the years 2007 to 2010 were a prime illustration. 

In reality, the correlation coefficient between the two series comes out to be MINUS 0.43, which means that not only does no link appear to exist, but if any exists, it’s a negative relationship. 

Gold may rise over the long run as the Consumer Price Index (CPI) continues to rise, but the research suggests that the correlation is not consistent enough to claim it is the ultimate inflation hedge.