24th March 2015 by Adrian Ash
Inflation down, gold up” isn’t something you are likely to hear in the near future, but that doesn’t necessarily make it untrue.
UK consumer-price inflation was reported at 0% for February but at the same time gold priced in British Pounds popped back above £800 per ounce for the first time in 5 weeks. A momentary blip? Not according to history.
This chart shows the slow, five-year trends in UK inflation and UK gold prices, adjusted for that rate of inflation, since 1975.
Anti-gold pundits claimed as early as 2009 that “Gold shouldn’t be rising, because inflation is missing. This chart, shows the link between UK inflation and the value of gold in real UK terms. Or rather, the lack of a link.
People buy gold when they fear a loss of value in currency, savings or other financial assets and gold surges in terms of paper money during hyperinflation, both by definition and by all historic examples. But simply looking at the 1970s, seeing strong inflation and then assuming that strong inflation is necessary for strong gains in gold would mean ignoring the last 15 years. Inflation went AWOL more than a decade ago. Gold has tripled for UK savers in real terms over and above changes in the cost of living.