Gold largely outperformed inflation for 51 years

Although current inflation in the Eurozone is a far cry from the inflation rates of the last two years, when it peaked at 10.6 per cent in October 2022, it has risen slightly to 2.3 per cent over the last two months. Time to compare the gold price development with inflation rates since the end of the gold price peg at $35 per ounce: Has the precious metal lived up to its reputation as an inflation hedge?

A clear vote for gold as a long-term store of value

In 1973, the Bretton Woods system ended, allowing the gold price to move freely again. The precious metal has since mostly outperformed the average annual inflation rates in the countries comprising today’s Eurozone – sometimes even by a multiple. Most recently in 2024, when annual inflation in the Eurozone is expected to have been 2.5 per cent, compared to a price increase of the precious metal of around 35 per cent. A look at the development of the gold price over the last 51 years shows that gold has always performed well in times of crisis and high inflation – just think of the two oil price crises in 1973 and 1979 with inflation rates of up to 14.5 per cent, which saw gold appreciate by over 200 per cent.

Multiple factors impact gold price in the short term

An example for the fact that gold best fulfils its role as an inflation hedge and store of value as a long-term investment: the year 2013, when inflation in the Eurozone was 1.4 per cent, but gold lost 31.16 per cent in value. A low inflation rate obviously has little influence on the gold price in the short term; other factors  may then carry more weight. In the long term, gold in euros has certainly fulfilled its role as a hedge against inflation with a more than 16-fold increase in value since 1978, or an increase of around 700 per cent since the introduction of euro notes and coins in 2002. However, due to this purely empirical and annualised gold price/inflation comparison, this  does not take into account shorter-term, and at times quite significant, gold price fluctuations and the associated risks.