Most Investors Are Wrong About Gold

Gold is not a reliable inflation hedge. The data is clear.

Since 1971, the World Gold Council reports that only 16% of gold price variation can be explained by changes in US CPI inflation. CFA Institute's 2024 analysis found that changes in headline PCE inflation were not meaningfully correlated with gold on average. The rolling 36-month inflation beta flips sign with confidence intervals including zero.

What gold actually is: a hedge against monetary disorder and real-rate compression, not against inflation itself. No significant cointegration between gold and US CPI from 1971 to 2020, but strong cointegration with the US M2 money supply.

Gold is a hybrid macro asset — highly sensitive to liquidity, money supply, real rates, dollar conditions, and systemic stress. In easy-money regimes, it can behave more like the Nasdaq than the CPI.

The demand structure matters. Total above-ground gold stock at end of 2025: approximately 219,891 tonnes. India and China dominate marginal consumer demand at roughly 51% of global jewellery demand by volume. In 2025, jewellery demand fell 24% while investment demand rose 17%, reaching roughly 40% of total consumption versus a typical quarter.

When sticky demand falls and hot money replaces it, the market looks strong — until the hot money leaves.