Ric Edelman: Many people buy gold as a hedge against inflation or a weak dollar, but the truth is that gold isn't guaranteed to protect you against either one. Let's look at inflation first. Remember the late 1970s and early 1980s? From 1979 through 1984, inflation is measured by the consumer price index, rose 7.
6% per year.
But if you tried to beat inflation by owning gold during this period, you would have been disappointed because gold prices rose just 4% per year, only about half as much. In fact you would have done much better if you would have invested in the stock market. The S&P 500 Stock Index rose over 15% each year compared to just 4% for gold.
Now let's look at using gold to protect against a weak dollar. Again, it doesn't work. Over the last 40 years, gold moved in the opposite direction of the dollar only 20% of the time according to Oppenheimer & Co.
, and from 1988 through 1992 when Bloomberg says the dollar fell 8%, gold prices fell 29%.
The lesson is clear; don't assume that gold is guarantee to protect you from either inflation or a falling dollar.