Go is that gold is not a perfect inflation hedge . Gold can protect against inflation , but the real kicker is interest rates .” Data from The World Gold Council shows that only 16 % of the variation in gold prices over the past 50 years can be explained by changes in CPI inflation . The late 1970s and early 1980s saw both strong gold returns and extremely high inflation , but this relationship has not been repeated since then . There was a short period when inflation ran high and gold returns were strong – from late 2007 to early 2008 – but correlation doesn ’ t automatically equal causation . As such , gold ’ s reputation as an inflation hedge may have been over-played . Real interest rates ( interest rates adjusted for inflation ) are a far more important driver of the gold price . Gold has no income , therefore the opportunity cost of holding it increases in line with interest rates . Ash says : “ For a good period of time , it has been a store of value against cash . If cash in the bank is losing money in real terms , gold is appealing .”
Sell the rumour … To add another layer of complexity , movements in the gold price are often