Gold: a bad hedge against bad markets – by Ian McGugan (Globe and Mail – October 10, 2016)

Gold’s most enthusiastic advocates possess an endless—and breathless—penchant for seeing disaster just around the corner. Inflation is about to soar! Governments are poised to debase paper currencies! Negative interest rates are going to eat your savings! The only thing gold bugs love more than precious metals is exclamation marks.

Maybe it’s time for skeptics to fight back with some exclamation marks of their own. Try these: Gold is not insurance against disaster! Gold is not a haven against bad times!

Those are the findings of a new study by Harvard economists Robert Barro and Sanjay Misra. Their paper, which appeared in the August issue of the Royal Economic Society’s Economic Journal, scrutinizes one of the most popular reasons for investing in gold: the notion that precious metals can buffer your portfolio from economic downturns. That is just not the case, according to the economists—or, at least, it’s not the case consistently enough to make gold a dependable cushion against calamity.

The researchers looked at how the metal performed during particularly vicious economic slumps, which they defined as periods when a country’s gross domestic product (GDP) per person falls by 10% or more in real terms.

They found that 56 such disasters had occurred since 1880 in 19 countries for which it was possible to calculate after-inflation returns on gold. In more than half the downturns (30 of 56), bullion actually lost value in real terms as the economy was crashing around it.

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