Why Gold Is Lying to You: The Dangerous Myth That Could Cost Your Wealth
Gold is lying to you. For decades, it promised protection against inflation, market swings, and geopolitical turmoil. Decades of data tell a different story. Gold fails as a hedge.
Gold Has No Stable Relationship With Inflation
Gold promoters lean on 1 claim above all others. Gold protects purchasing power. History rejects that claim.
From 1980 to 2000, United States consumer prices rose by over 110%. Gold prices fell from roughly $800 per ounce to near $250. Inflation rose. Gold collapsed.
From 2011 to 2015, inflation stayed low and stable. Gold fell more than 40%. No inflation threat existed. Gold still dropped.
From 2020 through 2024, inflation surged to levels not seen in 4 decades. Gold initially lagged. Real yields turned negative. Gold drifted sideways. Only later did gold spike, well after inflation peaked.
Correlation studies confirm the pattern. Rolling 5-year correlations between gold and CPI hover near zero. At times positive. At times negative. No persistence. No reliability.
An inflation hedge requires consistency. Gold offers none.
Interest Rates Fail As an Explanation
Another common claim links gold prices to interest rates. Low rates supposedly lift gold. High rates supposedly pressure gold.
The data refuses to cooperate.
From 2004 to 2006, the Federal Reserve raised rates 17 times. Gold rose more than 70%.
From 2016 to 2018, rates rose steadily. Gold moved sideways.
From 2022 to 2023, rates rose at the fastest pace since the early 1980s. Gold surged.
Real rates tell the same story. At times, gold rises as real yields fall. At times, gold rises as real yields rise. No rule holds.
Gold pricing ignores rate policy. Traders assign meaning after price moves, not before.
Money Supply Narratives Collapse Under Review
Gold advocates often point to money printing. Expanding balance sheets supposedly debase currency and lift gold.
Again, history disagrees.
Between 2008 and 2014, the Federal Reserve balance sheet quadrupled. Gold rose early. Gold peaked in 2011. Gold then fell for 4 years while balance sheets stayed bloated.
From 2020 to 2022, the money supply exploded. Gold spiked briefly. Gold then stalled while money growth remained elevated.
From 2023 onward, the money supply contracted. Gold surged anyway.
No timing relationship exists. No magnitude relationship exists. Monetary expansion fails as a predictive variable.
Gold Shows No Defensive Equity Correlation
Gold also carries a reputation as portfolio insurance. When stocks fall, gold supposedly rises.
Reality looks different.
During the 2008 financial crisis, gold fell alongside equities during the panic phase. Liquidity mattered more than safety narratives. Gold recovered later, long after stocks stabilized.
During the 2020 pandemic shock, gold fell sharply in March while equities collapsed. Forced selling hit every asset. Gold recovered only after liquidity returned.
In 2022, equities fell due to rate hikes. Gold moved sideways. No protection appeared.
Long-term correlation between gold and equities sits near zero. At times positive. At times negative. No dependable offset emerges.
Insurance requires reliability. Gold fails that test.
Geopolitical Risk Explains Little
Wars and political stress receive constant blame for gold rallies.
This argument relies on selective memory.
The Gulf War in 1991 produced no sustained gold rally.
The Iraq War in 2003 produced no sustained gold rally.
The Arab Spring produced no sustained gold rally.
The Russia-Ukraine war began in 2022. Gold spiked briefly. Gold then retraced. The recent surge arrived much later.
Markets digest conflict quickly. Gold trades fear only when fear sells.
Currency Weakness Fails As a Driver
Gold pricing in dollars leads many observers to blame dollar weakness.
The dollar rose strongly from 2014 to 2016. Gold fell.
The dollar weakened from 2017 to 2018. Gold moved sideways.
The dollar surged from 2021 to 2022. Gold rose.
Dollar trends explain little. Gold trades in every currency. Local currency gold prices often diverge widely. No global currency signal drives price.
Central Bank Buying Gets Overstated
Recent commentary leans heavily on central bank purchases.
Central banks bought gold in the past decades without major price impact. Central banks sold gold in the 1990s at depressed prices. Central banks buy near peaks and sell near troughs, like many investors.
Purchases also represent a small fraction of daily global gold trading volume. Futures, options, ETFs, and derivatives dominate price discovery.
Official buying offers a convenient story, not a causal engine.
Supply And Demand Fundamentals Offer No Clarity
Gold mining supply grows slowly. Recycling supply fluctuates. Jewelry demand rises and falls. Industrial demand remains modest.
None of these variables shifted meaningfully during the past year.
No supply shock occurred. No demand shock occurred.
Prices moved anyway.
When fundamentals stay flat, and price explodes, speculation fills the gap.
Gold Lacks Cash Flow, Yield, Or Valuation Anchor
Stocks generate earnings. Bonds generate coupons. Real estate generates rent.
Gold generates nothing.
No discounted cash flow model exists. No yield floor exists. No intrinsic valuation exists.
Price rests entirely on what the next buyer pays.
This structure invites speculation. Momentum matters more than fundamentals. Stories matter more than math.
The Recent Rally Fits A Classic Speculative Pattern
The past 12 months show familiar features.
• Price breaks resistance
• Media attention accelerates
• Explanations multiply after the move
• Retail interest increases
• Price momentum feeds belief
This sequence mirrors prior gold spikes. 1979. 2011. Each ended badly for late buyers.
Speculative markets thrive on narrative elasticity. Any event fits the story. Every data point becomes bullish.
Gold Correlation Shifts Reveal The Core Truth
Gold correlations change constantly.
Sometimes gold trades like a commodity.
Sometimes gold trades like a currency.
Sometimes gold trades like a risk asset.
Sometimes gold trades like a fear hedge.
An asset with shifting identity lacks predictive utility.
Markets assign gold a role only after price moves.
Behavioral Forces Dominate Gold Pricing
Psychology explains gold better than economics.
Gold appeals to distrust. Gold appeals to crisis thinking. Gold appeals to certainty seekers during uncertain times.
Fear attracts buyers. Momentum attracts buyers. Authority bias reinforces beliefs through expert commentary.
None of those forces requires economic validation.
Speculation thrives on emotion.
Media Incentives Fuel Gold Narratives
Financial media rewards certainty. Simple stories attract clicks.
Gold provides endless story material. Inflation fear. War fear. Currency fear. System collapse fear.
When gold rises, writers retrofit explanations. Rarely do writers admit randomness or speculation.
Narrative follows price, not cause.
Academic Research Confirms Weak Predictive Power
Peer-reviewed studies consistently show gold offers poor inflation hedging over practical time horizons.
Studies also show gold adds little risk-adjusted return when included blindly in portfolios.
Benefits appear only during select windows, often after the price already moved.
Academic evidence rejects gold as a reliable macro signal.
The Opportunity Cost Gets Ignored
Gold ties up capital without income.
During long flat periods, opportunity cost compounds silently.
From 1980 to 2000, gold lost purchasing power while equities compounded massively.
From 2011 to 2020, gold delivered little while productive assets grew.
Speculation distracts from disciplined allocation.
The Current Price Level Lacks Justification
No macro variable shifted enough during the past year to justify the magnitude of the move.
Inflation cooled. Growth stabilized. Liquidity tightened. Rates stayed elevated.
Gold rose anyway.
Speculation remains the only consistent explanation.
What Happens When Speculation Fades
Speculative rallies reverse once belief weakens.
Catalysts vary. Sometimes rising yields. Sometimes falling headlines. Sometimes boredom.
Gold requires constant fear to sustain premium pricing.
Fear fades faster than narratives predict.
Conclusion By Evidence, Not Belief
Gold prices over the past 12 months lack correlation to measurable metrics.
Inflation fails. Rates fail. Money supply fails. Equities fail. War fails. Currency fails.
Speculation fits every observed behavior.
Gold trades belief. Gold trades momentum. Gold trades stories.
Investors seeking discipline should treat gold accordingly.
Chapwood Investments, LLC, is a partner of Ethos Financial Group, LLC, a Securities and Exchange Commission-registered investment advisor. No mention, opinion, or omission of a particular security, index, derivative, or other instrument in this article constitutes an opinion on the suitability of any security. The information and data presented here were obtained from sources deemed reliable, but their accuracy and completeness are not guaranteed. At any given time, principals at Chapwood Investments, LLC may or may not have a financial interest in any or all of the securities or instruments discussed in this article. Guest contributors do not receive compensation and do not provide endorsements or testimonials. Past performance is not indicative of future results.
