This is why gold won't save your portfolio from inflation's bite, says MktwHulbert:
Think gold will be a good inflation hedge in coming months? Think again. Consider: If gold GCJ9, +0.20% were a good inflation hedge, its inflation-adjusted price would be constant. Yet, while U.S. inflation has declined in each month since last October, gold has risen nearly 12%. In the process, the gold-to-CPI ratio has risen markedly, from below 4.8 to nearly 5.3. Of course, five months is a short period of time.
What does this mean now? For gold to justify its current price in terms of inflation, the CPI either needs to be 47% higher or gold needs to trade for $902. Many scoffed at the researchers when they first circulated their study in late 2011, when gold was trading above $1,700. Gold’s subsequent decline led many to take their research a lot more seriously. Unfortunately for gold investors, their study continues to imply that gold’s fair value is a lot lower than where the yellow metal stands.
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