The new economics of gold investment?

The real, inflation-adjusted, price of gold is high. Historically, a high real gold price has been associated with low inflation-adjusted gold returns over the subsequent 10 years. Further, historically the realized 10-year rate of inflation has had close to no impact on realized 10-year nominal and real gold returns. An influx of investment in gold (from gold-owning ETFs, Costco shoppers, “de-dollarizing” central banks and possibly others) has seemingly doubled the real price of gold relative to pre-influx times. Today’s golden dilemma is yesterday’s golden dilemma: has an influx of gold buying ushered in a new age of permanently higher “this time is different” real gold prices or is this simply the latest “wash, rinse, repeat” cycle setting-up a significant fall in real gold prices?

That is a new working paper from Claude B. Erb and Campbell R. Harvey.