Gold ETFs’ Performance This Year Defies Inflation Hedge Thesis

Gold ETFs have outperformed stocks and bonds, but neither quite live up to the inflation hedge mantra.

sumit
|
Senior ETF Analyst
|
Reviewed by: Sumit Roy
,
Edited by: Sumit Roy

One of the most widely touted inflation hedges isn’t acting quite the way that investors had hoped. 

Gold ETFs like the SPDR Gold Trust (GLD) and the iShares Gold Trust (IAU) are down 2.3% even as inflation runs at its highest level in close to four decades. 

 

Spot Gold

 

That’s a disappointing outcome for investors, who have added $4.3 billion to the top 10 gold ETFs since the start of the year.

 

TickerFundYTD Inflows
GLDSPDR Gold Trust$1,922.15M
GLDMSPDR Gold MiniShares Trust$997.57M
IAUiShares Gold Trust$742.20M
IAUMiShares Gold Trust Micro$218.56M
SGOLAberdeen Standard Physical Gold Shares ETF$136.71M
AAAUGoldman Sachs Physical Gold ETF$70.47M
OUNZVanEck Merk Gold Trust$63.48M
GDXUMicroSectors Gold Miners 3X Leveraged ETN$60.52M
FGLDFranklin Responsibly Sourced Gold ETF$26.41M
RINGiShares MSCI Global Gold Miners ETF$22.79M

Source: ETF.com Screener  

 
Gold has been sold as a commodity that preserves its value against inflation, yet if it can’t rise in an extraordinary year for inflation like 2022, it calls into question that entire thesis. 

On an inflation-adjusted basis, gold prices reached their recent peak in mid-2020. Since then, they’ve lost a quarter of their value. The record inflation-adjusted high for gold prices was reached in 1980, when inflation was raging at double-digit levels. 

 
Inflation-Adjusted Gold Price 

 

Still Outperforming  

Gold bulls might argue that this year’s modest decline in gold prices is actually a good showing for the precious metal in the context of the large declines seen in financial markets. At their worst point, the S&P 500 ETF Trust (SPY) and the iShares Core U.S. Aggregate Bond ETF (AGG) were down by 22.5% and 12.5%, respectively. 

 

YTD Returns

 

Compared to that, gold has solidly outperformed, and bulls could argue that makes the metal a good portfolio diversifier. Still, unlike stocks and bonds, gold offers investors no yield, and its value primarily comes from its aesthetic properties and the collective belief that it’s something that’s valuable.  

That collective belief is obviously still there, though it’s weakened in recent years as bitcoin and other cryptocurrencies entered the scene and stole some of gold’s appeal as a store of value.  

Gold Up in Foreign Currencies  

Another defense of metal centers around the idea that the gold market is global.  

While prices for gold are down a little more than 2% in U.S. dollars, gold prices are up when translated into most other currencies. 

In euros and pounds, gold is up around 8%; in yen, it’s up 13%. So anyone holding gold or gold ETFs outside of the U.S. is probably pretty content with their performance. 

Gold has shown this year that it’s too volatile to be an inflation hedge. While you could make the case that it’s maintained much of its value over very long periods of time—multiple decades or even centuries, it doesn’t necessarily do so over the time periods investors care about: months, years or even a few decades. 

A more reliable inflation hedge would be the Treasury inflation-protected securities you find in ETFs like the Vanguard Short-Term Inflation-Protected Securities ETF (VTIP), which compensate investors directly based on the consumer price index.  

And for multiyear periods, you might as well invest in assets that can not only hold their value against inflation but grow their value against inflation—like stocks.  

 

Follow Sumit Roy on Twitter @sumitroy2      

Sumit Roy is the senior ETF analyst for etf.com, where he has worked for 13 years. He creates a variety of content for the platform, including news articles, analysis pieces, videos and podcasts.

Before joining etf.com, Sumit was the managing editor and commodities analyst for Hard Assets Investor. In those roles, he was responsible for most of the operations of HAI, a website dedicated to education about commodities investing.

Though he still closely follows the commodities beat, Sumit covers a much broader assortment of topics for etf.com, with a particular focus on stock and bond exchange-traded funds.

He is the host of etf.com’s Talk ETFs, a popular video series that features weekly interviews with thought leaders in the ETF industry. Sumit is also co-host of Exchange Traded Fridays, etf.com’s weekly podcast series.

He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing chess and snowboarding in Lake Tahoe.