(Mike Maharrey, Money Metals News Service) You often hear gold referred to as an “inflation hedge.” Jim Rickards argues that we should really consider gold the “everything hedge.”
Rickards is an investment banker and a well-known commentator and market analyst.
Gold has been on a tear for well over a year. To put the recent bull run into perspective, in October 2023, gold was at $1,830 an ounce. Today, the yellow metal is trading around $3,300 an ounce. That’s a 75 percent gain in just 18 months.
As Rickards put it in an article published by the Daily Reckoning, “the upward trend in gold prices is relentless and undeniable.”
Consider the other gold bull markets. During the inflationary decade of the 1970s, gold rose 2,185 percent. Between 1999 and 2011, the yellow metal added another 670 percent. Even with significant bear markets between 1981 to 1999 and from 2012 to 2015, gold has still gained 9,000 percent since 1971.
Gold: Not Just an Inflation Hedge
Conventional wisdom is that investors should hold gold as an inflation hedge. Over the long term, this is a wise strategy. Consider that at the peak of the latest inflation surge, CPI climbed by around 12.3 percent. During that inflationary period, gold rose by 29 percent.
But as Rickards observes, gold is “an imperfect inflation hedge in terms of strict correlation.” He argues that it’s better to think of gold as an “everything hedge.”
Fundamentally, gold is a hedge against uncertainty. And as Rickards notes, one certainty in this day and age is uncertainty.
“The vectors of uncertainty are everywhere. These include tariffs, tax policy, the Department of Government Efficiency (DOGE), the War in Ukraine, the rise of China, a likely recession, left-wing violence, and even the status of Greenland and the Panama Canal among others.
“It’s difficult to forecast how any one of these situations will turn out, let alone all of them and their complex interactions. Stocks and bonds can be volatile as a result. Gold is the one safe haven asset that powers through them all and offers investors some peace of mind. It is truly the everything hedge.”
We’ve seen this play out during the extreme volatility caused by the trade war. When tariffs went into effect, sending markets into chaos, gold was the last safe haven standing.
Gold has been propelled higher primarily by central bank buying and investing in the Asian markets. Western investors have still largely remained on the sidelines. Rickards argues that this sets things up for even more explosive moves higher.
He also notes that each $1,000 gain is easier than the next, thanks to a psychological phenomenon known as “anchoring.”
“The investor anchors on the number of $1,000 as a fixed gain and treats each such gain as the same. In pure dollars, they are the same. You make $1,000 per ounce as each benchmark is passed.”
However, each $1,000 gain is a smaller percentage. For instance, from $1,000 to $2,000 is a 100 percent gain. But from $3,000 to $4,000 is only a 33 percent increase.
“This math is what gives rise to a gold buying frenzy. We’re not there yet. Gold buying has been limited mostly to central banks and large institutions such as sovereign wealth funds (SWFs). Retail interest in the U.S. has been slight although retail buyers have been more active in India and China. Once the frenzy kicks in those $1,000 benchmarks will be passed quickly. That’s why it’s not too late to become a gold investor. Don’t kick yourself about the gains you’ve missed. Instead, look forward to the gains that are coming.”
Mike Maharrey is a journalist and market analyst for Money Metals with over a decade of experience in precious metals. He holds a BS in accounting from the University of Kentucky and a BA in journalism from the University of South Florida.
