The pandemic-driven bear market of 2020 has spurred investor questions about gold, government debt and inflation. Fisher Investments discusses each topic in these pre-recorded excerpts from a recent client-exclusive capital markets update.
During down markets and periods of volatility, investors often consider adding gold to their portfolios. But Bill Glaser, Fisher Investments’ Executive Vice President of Portfolio Management, cautions the shiny metal has a poor performance history relative to other asset classes like stocks or bonds.
The COVID-19 pandemic has created a flurry of new government-issued debt, which has investors worried about its impact on stocks. Aaron Anderson, Fisher Investments’ Senior Vice President of Research, explains that affordability, rather than the absolute level of debt, is the key variable to examine. By this measure, Fisher Investments believes US debt isn’t currently a drag on stocks.
Another investor concern is that COVID-related fiscal and monetary policies will set off a period of high inflation. Michael Hanson, Senior Vice President of Research, explains that while the money supply has grown as a result of government stimulus measures, a higher savings rate and the “velocity” of money are keeping inflation in check.
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Two Sides of the Same Coin: Gold and Inflation

In times of economic uncertainty, investors often flock to safe-haven assets to protect their wealth. Gold has long been considered one of the most reliable stores of value during turbulent times. Another factor that investors must consider is inflation. When prices rise, the purchasing power of money decreases, and investors need to find ways to hedge against this threat. Interestingly, gold and inflation share a unique relationship – two sides of the same coin, if you will.

Gold has always been associated with wealth and prestige. From ancient civilizations to modern times, it has been highly sought after for its beauty and rarity. Beyond its aesthetic appeal, gold has also proven to be an effective hedge against inflation. As prices rise, the value of gold typically increases as well, making it an attractive investment option.

One of the factors that drive gold prices is the market’s perception of inflation. When inflation expectations are high, investors tend to flock to gold, driving its price up. This is because gold is often seen as a store of value that maintains its purchasing power over time. Unlike fiat currencies, which can be easily devalued by government actions, gold is a tangible asset that cannot be printed or manipulated.

Historically, gold has performed well during periods of high inflation. For example, during the 1970s, a decade marked by high inflation in the US, the price of gold soared from around $35 per ounce to over $800 per ounce. Similarly, during the recent global financial crisis of 2008, as central banks around the world engaged in massive monetary stimulus measures, gold prices reached all-time highs.

However, it is important to note that while gold can act as a hedge against inflation, it is not immune to market fluctuations. Like any other asset, its price is subject to supply and demand dynamics as well as investor sentiment. Therefore, it is not a foolproof protection against inflation but rather a component of a diversified portfolio that can help mitigate its effects.

Additionally, it is crucial to consider other factors that can influence the relationship between gold and inflation. For example, interest rates play a significant role. When interest rates rise, the opportunity cost of holding gold increases. Investors may prefer to invest in interest-bearing assets rather than non-yielding gold. On the other hand, when interest rates are low, the relative attractiveness of gold as an investment option improves.

In conclusion, gold and inflation are closely intertwined. Gold has historically acted as a hedge against inflation, with its value often rising during periods of high inflation. In uncertain times, investors turn to gold to protect their wealth and preserve their purchasing power. However, it is important to understand that gold is not a guaranteed protection against inflation. Its price is subject to market fluctuations and other factors, such as interest rates, can influence its performance. Therefore, gold should be viewed as part of a well-diversified investment portfolio rather than a standalone solution to inflation.