Inflation Fighter? Risk Hedge? Why Gold Investors Should Not Believe Everything They Hear

Gold investors naturally believe that the surge in gold prices (GC00) over the past year is nothing mysterious. Inflation, geopolitical risks, safe-haven demand—these reasons are readily available. However, a closer look at the data reveals that these popular explanations often do not hold up in the face of statistical analysis.

【The Myth of ‘Inflation Hedge’】

Perhaps the most widespread explanation is that gold is an inflation hedge: when inflation heats up, gold prices rise, and vice versa. But as a short- or medium-term guide to gold price movements, inflation indicators perform extremely poorly.

Looking at 40 years of data: comparing the 12-month change in CPI (Consumer Price Index) with the corresponding change in gold prices, the R-Squared (coefficient of determination) is only 1.1%. This means that changes in CPI can only explain 1.1% of the variation in gold prices. At the commonly used 95% confidence level in statistics, this correlation is so weak that it can be ignored. In other words, inflation rate as a short-term timing indicator is almost useless.

【Lack of Predictive Power Logic】

Since no robust statistical model can explain why gold has risen so much, we cannot accurately predict its performance in 2026 and beyond. The popular theories that gold bulls deeply believe in are not reliable synchronization indicators, let alone leading indicators.

【Investors’ Psychological Projection】

If the data does not support these logics, why do people still believe in them? It is more of a psychological comfort. When market uncertainty increases, investors tend to seek a narrative that can be self-justifying, and gold happens to carry this ancient narrative. But history warns us that when such narratives become disconnected from data, risks tend to quietly accumulate.