Gold vs. Equities: What’s the Best Long-Term Inflation Hedge?

Why Gold Isn’t the Inflation Hedge It’s Believed to Be

When economic uncertainty rises, headlines often shout that gold has hit new highs. It’s a familiar story: concerns about the dollar, inflation, or market volatility send investors looking for a “safe haven,” and gold gets top billing. But while gold may grab attention in the short term, that doesn’t make it a reliable long-term inflation hedge.

Despite its reputation, gold’s price appreciation over the past few decades has barely outpaced inflation. It doesn’t generate income, it doesn’t grow earnings, and it doesn’t pay dividends. It simply sits and shines.  Here’s what Warren Buffett said about the metal in his 2011 letter to Berkshire Hathaway shareholders:  

Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.

A 40-Year Look: Gold vs. S&P 500 Returns

To really understand which asset class has protected and grown wealth more effectively, we can compare gold, inflation (as measured by CPI), and the S&P 500 from January 1980 through today (as of April):

Gold’s performance has barely exceeded inflation, rising 4.3 times over the period vs. CPI’s 4.1 times. The S&P 500, on the other hand, has grown more than 51 times in value. And that doesn’t even include dividends. When reinvested over four decades, dividends would push total returns even higher! 

The S&P 500: A Superior Long-Term Inflation Hedge

What makes equities the best hedge against inflation? It’s simple: great companies grow. They innovate, adapt, and increase their earnings over time. When prices rise, strong businesses often pass those costs along to consumers, helping them preserve margins and shareholder value.

Unlike gold, which just reflects what someone else is willing to pay for it, stocks represent ownership in businesses that create real economic value. Over time, that’s the most effective way to not just keep up with inflation but beat it. 

What Investors Should Do Now

With inflation still a concern and headlines as loud as ever, it’s tempting to chase short-term comfort. But the data is clear: the best investment for long-term inflation protection has been a broadly diversified portfolio of equities, particularly in America’s most resilient companies.

So if you’re wondering how to protect your purchasing power in the years ahead, ask yourself this: would you rather hold a metal that’s barely kept up with inflation, or own a stake in the world’s most productive enterprises?