Gold’s Inflation Hedge Myth Under Scrutiny Amid Rising Macro Uncertainty

Gold’s recent rally has been widely attributed to its traditional role as an inflation hedge and a refuge during market turmoil. However, data from the past 18 months reveals a growing divergence: while consumer price inflation in major economies peaked at 8.1% in 2023, gold’s XAU/USD price rose only 3.2% over the same period, lagging behind nominal U.S. Treasury yields that averaged 4.8%. Investors often cite gold’s long-term resilience, with XAU/USD up 127% since 2011. But recent volatility undermines the assumption that gold consistently outperforms inflation in real-time. During 2024 and 2025, when headline inflation averaged 3.9%, gold’s annualized return was just 0.8%, significantly below the 6.4% average return of the S&P 500. This suggests that gold’s role as a reliable inflation hedge may be overstated in a high-rate environment. Further scrutiny of ETF flows shows a shift in sentiment. SPDR Gold Shares (GLD), the largest gold-backed ETF, saw net outflows of $1.2 billion in Q3 2025, the largest since 2020. Similarly, iShares Gold Trust (IAU) recorded a 4.3% decline in assets under management over the same quarter, indicating institutional skepticism. These outflows coincide with a 17% rise in U.S. real yields, which directly pressure gold’s opportunity cost. Market participants now face a recalibration. With central banks maintaining restrictive monetary policies and digital assets gaining traction as alternative hedges, gold’s dominance in portfolio allocation is under pressure. Investors relying solely on historical narratives may be mispositioned in volatile environments where currency strength and yield curves outweigh traditional safe-haven demand.