Gold performs, gold protects

The Gold Performs graph below compares gold price, S&P (Standard and Poor&500 Index) and GDP (nominal Gross Domestic Product) in terms of cumulative growth of each from 1971 to 2025. Gold grew by 541%, S&P by 484% and GDP by 339%. Annual average growth for gold was 10%, S&P at 9% and GDP at 6%. Maximums were 92%, 45% and 14% respectively. Gold did have a higher standard deviation of 27%, compared to 17% for S&P and 3% for GDP. But more risk means more return, and vice versa.

Sources:

FRED (GDP); Shiller Data (S&P); World Bank (Gold).

Gold protects as a hedge or safe-haven, not just from inflation, but from the 'flipside' of that same 'coin' of the boom-bust cycle. Both are driven, in the longer term, not by "animal spirits," but by "monetary spirits." Inflation is when money inflation has a widespread impact as price inflation. A bubble is when money increases have a more concentrated impact such as in certain asset values. The bubble eventually bursts when "monetary spirits" are finally reined in by monetary realities.

I say "monetary spirits" because of the role of fiat money, as indicated by say M3. When money supply outstrips money demand in a localized way, then that is a bubble, and when in a general way, that is inflation. The former shows up in certain asset, wholesale and/or producer prices, whilst the latter shows up in CPI. Asset prices include the S&P. But nominal GDP is also 'ginned up' as it is ultimately a price times quantity measure as well. Price is expressed in money terms.

Gold can have ups-and-downs, as standard deviation indicates, due to the "animal spirits" of fear and uncertainty, but these tend to be daily, weekly or monthly. Yet, gold both protects and performs, due to the "monetary spirits" of inflation and boom bust, which tend to be yearly or decennially. Thus, gold performs when the S&P does not, like in the aftermaths of the 2001–02 Dot Com Collapse, 2008–09 Global Financial Crisis (GFC) and 2020–21 Covid-19 Lockdowns.

Therefore, when it comes to gold, "follow the money," of central bank 'money printing' and fractional reserve bank 'fountain pen money', for both superior inflation protection and boom-bust performance.

And besides, Mark Skousen rightly 'begged the question' as follows: "Gold and Silver have always had value, never gone to zero. Can you say the same for stocks and bonds?"