Thursday, January 14, 2010

Gold's supposed to be an inflation hedge, but...

This article by Chris Dillow is presented for your edification. He starts off with the assumption that gold and index-linked gilts [the U.K.'s answer to TIPS] are both inflation hedges, and therefore should correlate well with each other. However, after comping them together, he found that they don't correlate all that well with each other. "The correlation has not been higher than 0.3 in the past 10 years, and has usually been around zero."

He knocks down three reasons for the lack, and then supplies three of his own reasons to explain it.

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