By Jasmine Horsey
Investors talk of gold as the ultimate asset for stashing wealth in uncertain times. But two Harvard researchers say they’ve got it wrong.
Professor Robert Barro and PhD student Sanjay Misra argue in new research that gold is not the hedge investors believe it to be.
That’s a key thought at a time when gold is rallying, partly as investors use it as a safe haven amid an uncertain global economy. Gold is up by almost 29% so far this year.
But Mssrs. Barro and Misra say they’ve been crunching the numbers and found gold moves independently from whatever the economy is doing.
Were gold to be a good hedge against recessions, its price would shoot up as economic growth and consumption plummet. Yet, between 1836 and 2011, they showed no correlation.
The two researchers also looked at how gold fared during a series of “macroeconomic disasters” in advanced economies, when a country’s real per capita gross domestic product fell by 10% or more over an average period of three to four years. Disasters considered included the Great Depression in the U.S. and the experiences of Germany and Japan during the Second World War.
They found that during the 56 disaster periods investigated between 1880 and 2011, gold price gains—after inflation is taken into account—averaged 2.1% a year, not much better than in normal periods, when it rose 1.5%.