COLUMN-Gold still not the best inflation fighter

Tue Jul 16, 2013 3:59am EDT
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By John Wasik

CHICAGO, July 16 (Reuters) - As U.S. interest rates have risen, owning gold has been a loser's game for anyone is trying to hedge against inflation.

Gold isn't a smart inflation hedge, but many people have been using it that way because they think they have few alternatives.

A low-inflation rate has been punishing to gold investors for the past three months, and the Consumer Price Index has been running well under 2 percent this year. As evidence, the leading gold bullion vehicle, the SPDR Gold Trust ETF, has lost nearly a quarter of its value over the past year as investors continue to sell out of their positions. It was down 23 percent year to date through July 12.

Stocks of gold-mining companies, which can get bruised even more than spot metal prices, have fared worse. The Market Vectors Gold Miners ETF, which holds leading mining companies such as Barrick Gold Corp and Newmont Mining Corp lost nearly half of its value year to date, off 47 percent.

To be fair, gold prices have rebounded in recent weeks. Gold reached a near three-week high after Fed Chairman Ben Bernanke hinted that a highly accommodative policy was needed for the foreseeable future. But, at around $1,285 per ounce on Monday, gold is no where near it's high of $1,889 in 2011.


Will the Federal Reserve's cheap-money machine slowdown ratchet up interest rates even more? A distinction needs to be made: The tapering of its "quantitative easing" programs may or may not lead to inflation. Nevertheless, rising rates - and a resulting stronger dollar - hurt gold bullion, which doesn't pay dividends or interest.   Continued...