The value of gold, in terms of the real goods and services that it can buy, has remained largely stable for many years. In 1900, the gold price was $20.67/oz, which equates to about $503/oz in today's prices. In the two years to end-December 2006, the actual price of gold averaged $524. So the real price of gold changed very little over a century characterised by sweeping change and repeated geopolitical shocks. In contrast, the purchasing power of many currencies has generally declined.

ENLARGE

Investors in gold can point to a growing body of research supporting gold's reputation as a protector of wealth against the ravages of inflation. Market cycles come and go, but extensive research from a range of economists has demonstrated that, over the long term, through both inflationary and deflationary periods, gold has consistently maintained its purchasing power.

In the short run, experience has shown that gold can deviate from its long-run inflation-hedge price, and, when enjoying a sustained buoyant period, as is currently the case, can offer opportunities for impressive returns.

Research papers

• Short-run and Long-run determinants of the Price of Gold
  by Eric J Levin and Robert E Wright, 2006
• Inflation Protection: Why Gold Works better than 'Linkers'
  by David Ranson, 2005
• Gold as a Store of Value
  by Stephen Harmston, 1998