By Matthew Kerkhoff
It's often touted that gold is a great, perhaps the best hedge against inflation. I'm not sure why this belief is so widespread among precious metal enthusiasts, but a quick look at the chart below should help put things in perspective.
This is a long-term chart looking back more than 200 years at the real, inflation adjusted returns of major asset classes.
The fact that gold shows a positive real return (0.6%) demonstrates that over the long run, gold is in fact a good hedge against inflation. But as you can see, stocks and bonds are much, much better. During that same time period, bonds have provided a 3.5% annual return in excess of the rate of inflation. Stocks, the best performing asset class over the last couple hundred years, provided a 6.7% real annual return.