Gold: The Ultimate Behavior Bias

The investment industry’s retail segment frequently views gold as a robust mitigant against future inflation. This article’s objective is to answer the question Is gold a useful or possibly useful mitigant against future inflation? If gold is an effective mitigant, then a second question must be answered: How best should gold be incorporated within a portfolio? If gold is an ineffective mitigant, then a different question must be closed out: Why does such a wide swath of the retail community accept this false/misleading myth? The answer is a story of extreme behavioral bias layered on top of a shocking lack of historical awareness. The resulting analysis shows that gold is a terrible inflation mitigant. This result holds no matter the size of the allocation, the level that inflation must reach before gold is added, or the accuracy of the investor’s inflation forecast.