Why Is Gold Not Rallying When Inflation Is So High?
Because gold is money too
(Not intended to be investment advice. I do own some gold as a portfolio diversifier.)
One question you might have amidst this recent bout of inflation is why isn’t gold, a classic inflation hedge, rallying when inflation has been running so hot?
To understand why, it helps to first understand what gold is and what it is not. Gold is universal money that’s valued by virtually everybody and can generally quickly and with little friction be turned into dollars, Euros, etc (especially gold coins). It can’t be printed so its supply is determined by the amount that was previously mined and minted plus what can be produced via new mining in the near term.
What gold is
You shouldn’t think about gold’s value as constantly fluctuating. It’s actually more instructive to think of gold’s value as relatively fixed while the value of other things like currencies are constantly fluctuating in gold terms. So when gold goes up in dollar terms, it should be interpreted as the U.S. dollar depreciating relative to gold. Thinking about it this way makes more sense because the factors that impact gold (primarily production and to a much lesser extant jewelry industry demand) are much less impactful when compared to all the…
