Gold versus U.S. Common Stocks: Some Evidence on Inflation Hedge Performance and Cyclical Behavior

By Anthony F. Herbst

"Over the very long term- that is, from 1800 to 1976-gold has proved to be inferior to the stock market both as an investment and as an inflation hedge. On the other hand, gold has exhibited a characteristic that is rare in common stocks: It has had a strongly negative beta over a span of several years. Thus gold may sometimes be used within a portfolio to reduce or eliminate systematic risk.

An examination of the long-term relationship between the price of gold and the stock market in the United States suggests that, over the very long term, gold may be in-ferior to the stock market as investment and as inflation hedge, even when dividends on stock investments are excluded. Whether or not historical relationships will con-tinue to hold in an era in which gold is no longer formally linked to the dollar is open to question, however. Furthermore, based on its characteristics in the portfolio con-text, gold can play an important role in portfolio investment management."  »»» Click Here For More