Anything but gold - The golden constant revisited

This paper revisits the golden constant – gold’s property of keeping constant purchasing power – via a comparison with a set of 17 commodities (energy, metals and agricultural products). We use graphical devices of the CPI-deflated commodity prices first, then stationarity tests designed to assess how fast the real prices of the commodities revert to their “constant” and, finally, measurements of their convergence speed. We find that the real price of gold is far from constant, farther than the real price of most other commodities. We also note that the mean reversion of gold’s real price to its constant/average is weaker and slower than that for most other commodities. These findings suggest that most commodities perform better than gold when it comes to keeping constant purchasing power. A portfolio of commodities would provide liquidity similar to that of gold while offering investors more stable protection against inflation.