SPDR Gold Trust (ETF) (GLD), iShares Silver Trust (ETF) (SLV): Do Gold and Silver Protect You From Inflation?

During this time, gold prices spiked by 360%, while inflation rose by only 25.5%. So gold didn’t hedge against inflation; it served as a highly risky, speculative, yet rewarding investment, which is more than fine for those who wish to bet on this metal.

The two charts above also show that the rise in U.S money base didn’t translate into a spike in inflation.

Hedging against inflation

If not gold or silver then how does one go about hedging against inflation? The financial markets offer many ways to do so without needless exposure to high-risk, volatile assets. This includes investing in U.S Treasury Inflation-Protected Securities or the iShares Barclays TIPS Bond Fund (NYSEMKT:TIP), which follows the price and yield of these inflation-protected securities. This ETF also has a much lower fee rate of 0.2% than SLV or GLD – their fee rates are 0.4% and 0.5%, respectively. The TIPS Bond Fund ETF holds a variety of inflation-protected securities.

Other alternatives include hedge stocks such as Wal-Mart Stores, Inc. (NYSE:WMT). The lion’s share of its revenues come from the U.S (nearly 70%), and its steady growth in sales is consistent with the rise in the U.S economy in nominal terms (i.e. real GDP growth rate + inflation). The table below summarizes this data:

As seen above, the growth in sales of Wal-Mart Stores, Inc. (NYSE:WMT) during the past three years is very close to the growth in U.S economy and inflation. If inflation will rise sharper, it will be reflected in the rise in Wal-Mart’s revenues. On the other hand, gold and silver prices moved in 2011 and 2013 with very little correlation to the U.S economy.

Takeaway

I think gold and silver are high-risk and high-potential-return investments. They don’t serve well as a hedge against inflation. This realization is becoming more apparent in recent years as both precious metals haven’t performed well. Finally, if you still fear a sharp rise in inflation, you might be better off investing in securities that are more linked to U.S inflation as indicated above.

The article Do Gold and Silver Protect You From Inflation? originally appeared on Fool.com.

Lior Cohen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Lior is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.