Research by Duke University’s Campbell Harvey and former TCW manager Claude Erb warns that the recent surge in gold prices may leave investors exposed to disappointment.
Their study measures gold relative to consumer prices and finds the gold price-to-CPI ratio currently sits at 9-to-1, surpassing the roughly 7-to-1 level that preceded a 50% decline in gold after 2012. The authors question two widely cited reasons for holding gold: that it reliably hedges inflation and that it consistently protects against geopolitical or financial crises.
Although gold has outpaced inflation over the past two decades, the researchers point out that gold’s ability to preserve purchasing power appears to materialize only over very long stretches of time—potentially on the order of a century. Over shorter horizons, gold does not systematically shield investors from market downturns. Their analysis shows that when gold becomes highly elevated versus inflation, as it is now, the metal tends to deliver negative real returns over subsequent five- to ten-year periods.
In short, the paper suggests caution for investors drawn to gold by recent gains or by its reputation as a safe haven. Elevated price-to-inflation ratios have historically preceded prolonged stretches of underperformance, and the metal’s long-term real return profile is uneven unless measured over many decades. Investors considering gold should weigh these historical patterns against their own time horizons and risk tolerance rather than assuming gold will consistently preserve wealth or protect against crises.