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Gold & Inflation
The value of gold, in terms of the real goods and services that it can buy, has remained largely stable for many years. In 1900, the gold price was $20.67/oz, which equates to about $503/oz in today's prices. In the five years to end-December 2008, the price of gold averaged around $606. So the real price of gold has endured a century characterised by sweeping change and repeated geopolitical shocks and more than retained its purchasing power. In contrast, the real value of most currencies has generally declined.
Investors in gold can point to a growing body of research supporting gold's reputation as a protector of wealth against the ravages of inflation. Market cycles come and go, but extensive research from a range of economists has demonstrated that, over the long term, through both inflationary and deflationary periods, gold has consistently maintained its purchasing power.
In the short run, experience has shown that gold can deviate from its long-run inflation-hedge price, and, when enjoying a sustained buoyant period, as is currently the case, can offer opportunities for impressive returns.
The above article is taken from the World Gold Council –
www.invest.gold.org