Gold Hasn’t Been Effective at tracking inflation
Gold is sometimes touted as a tool for protecting wealth from rising prices. But history shows the challenges of using gold to offset the impact of inflation.
Since 1970, gold has often experienced large price swings relative to annual inflation.
Treasury Inflation Protected Securities (TIPS) are inflation-linked securities issued by the US Government whose principal value is adjusted periodically in accordance with the rise and fall in the inflation rate. TIPS are subject to interest rate risk. Investors who purchase individual TIPS should be aware of a phenomenon called “phantom income” – TIPS inflation adjustment to the face value of the bond is taxable in the year it occurs even though you won’t receive the bond’s full value until it matures. Individual TIPS guarantee an inflation-adjusted return if held to maturity, but there is no guarantee; you may buy or sell TIPS before maturity, which could lead to gains or losses.
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