Latest / Inflation and Your Money with Fexingo: Protecting Purchasing Power and Beating Inflation / How Inflation Is Quietly Eating Your Gold Investment Gains
Transcript
- Lucas: Gold just crossed four thousand dollars an ounce for the first time, which sounds like a huge win for anyone who bought in a few years ago. Luna: Four thousand does sound impressive. That's up what, about fifty percent from the 2020 highs? Lucas: Closer to fifty-five percent actually. But here's the thing that doesn't show up in the headline number — when you adjust for inflation, gold hasn't actually gained that much purchasing power. Luna: Wait, so you're saying the record price is kind of an illusion? Lucas: Not entirely an illusion, but definitely less impressive than it looks. Let me walk through the math. The latest CPI reading from May 2026 puts the index at 334.0, up from about 332.4 in April. Since 2020, cumulative inflation has been roughly twenty-five percent. Luna: So gold's fifty-five percent nominal gain gets cut to maybe thirty percent real? That's still decent, but not the bonanza it appears. Lucas: Exactly. And if you bought gold in early 2021, around eighteen hundred dollars, your nominal return is about one hundred twenty percent. But in real terms — adjusting for what that gold can actually buy — it's more like seventy-five percent. Still good, but the gap matters. Luna: I think most people just see the dollar number on their brokerage statement and feel rich. They don't automatically subtract the inflation that happened in between. Lucas: Right. And that's the quiet erosion we're talking about. The gold price is set in nominal dollars, but your purchasing power depends on what those dollars can buy. If a gallon of milk costs five dollars instead of three, your gold hasn't stretched as far. Luna: So what's the practical takeaway for someone holding gold right now? Are we better off in something else? Lucas: Let's look at the gold ETF, GLD. It's trading around 371.65 as of today, up about two percent in the last five days. But the S&P 500 is at 7,466, basically flat over the same period. Gold is having a moment. Luna: Yet the ten-year breakeven inflation rate is at 2.25 percent, which is actually down from where it was last year. So the market doesn't seem panicked about inflation accelerating. Lucas: That's a key point. The breakeven — which is the market's expectation of average inflation over the next decade — has been drifting lower. If inflation expectations are moderating, the case for gold as an inflation hedge weakens. Luna: Unless you think the breakeven is wrong, which some gold bugs absolutely do. Lucas: Sure, and that's the debate. But for a typical investor, the real question is: are you getting compensated for the risk? Gold doesn't generate cash flow, doesn't pay dividends. Its entire return comes from price appreciation. Luna: And if that appreciation is mostly just keeping pace with inflation, you're not actually building wealth. You're just treading water. Lucas: Right. Compare that to a broad stock index. Over long periods, equities have returned about seven to eight percent above inflation. Gold has historically returned maybe one to two percent real. Luna: But gold feels safer. When the market drops, people run to it. That's the psychological appeal. Lucas: Absolutely. And there's a place for that in a portfolio — as a diversifier, not a core holding. But if you're banking on gold to protect your purchasing power over decades, the math is sobering. Luna: If today was actually useful to you, the way these stay ad-free is listener support — buy me a coffee dot com slash fexingo. Lucas: Yeah, it's a small gesture that goes a long way in keeping these conversations independent and free for everyone. Luna: Totally agree. And speaking of protecting your money, let's get back to gold and what the latest data says about its effectiveness right now. Lucas: So let's look at the gold miners index, GDX. It's trading around 72.94, which is down almost three percent in the last five days. That's interesting because gold itself is up slightly. Luna: Mining stocks often lag or lead the metal itself. But a drop while gold rises suggests investors are skeptical about the sustainability of these prices. Lucas: Exactly. If gold were truly breaking out into a new sustainable range, we'd expect miners to follow. The divergence is a yellow flag. Luna: So what's your bottom line on gold in mid-2026? Is it a buy, a hold, or a sell? Lucas: I'd say hold, but don't overweight. For most people, a five to ten percent allocation is plenty. The real protection against inflation isn't gold — it's owning businesses that can raise prices. Luna: Earnings power. Stocks with pricing power tend to pass inflation through to customers. Lucas: Right. Companies like, say, a dominant software firm or a consumer staple brand can adjust prices annually. Gold just sits there and hopes the next buyer pays more. Luna: And with the Fed holding rates steady at 3.63 percent, the opportunity cost of holding gold is real. You're giving up that yield. Lucas: That's the other side. When rates are low, gold becomes more attractive because there's no yield to miss. But at three point six percent, you're sacrificing a decent risk-free return. Luna: So the real threat to gold isn't just inflation eating gains — it's also the Fed keeping rates where they are. Lucas: Exactly. The combination of moderate inflation expectations and positive real yields creates a tough environment for gold to outperform. Luna: Alright, so gold isn't a bad thing to own, but it's not the inflation panacea some make it out to be. Lucas: That's the takeaway. Know what you own and why. If it's for psychological comfort during market turmoil, fine. But if it's for protecting purchasing power over the long haul, you might be disappointed. Luna: Good perspective to have. Thanks Lucas. Lucas: Thanks Luna. We'll catch everyone next time.