Gold vs. crude oil, which one has a stronger inflation hedge?

（Source: Morningstar Investment Insights）

Middle East conflicts continue to keep market nerves on edge, and crude oil has moved back to the market’s “top spot.”

International benchmark oil prices—Brent—have risen rapidly since March, with gains of nearly 50% within the month; meanwhile, multiple domestic crude oil funds have also advanced in tandem, with many already posting cumulative returns of more than 40% as of March.

As oil prices rise, global inflation expectations are rekindling.

For most people, an important goal of investing is to have the rate at which assets grow outpace inflation, thereby maintaining purchasing power.

Due to limited reserves and their tangible nature, gold and crude oil have long been seen as natural hedging and anti-inflation tools. But how effective are they in actually fighting inflation, and how should we make good use of these two types of assets in a portfolio?

01

In high-inflation periods, who performs better?

Let’s first review, among a few domestic periods with relatively high inflation levels since 2000, how gold and crude oil have performed.

We can see that in these periods, both gold and crude oil overall have shown strong anti-inflation capabilities—not only managing to beat inflation, but also generally outperforming stocks and bonds in the same period.

Moreover, compared with the alternative, crude oil’s anti-inflation performance is even stronger, with price increases that are typically higher than gold’s.

If we broaden the view to the U.S. market with a longer data history, we can find a similar pattern.

Except for 1977–1980, in other high-inflation phases crude oil’s performance generally outpaced gold; and between 1987 and 1990, gold even showed a period of underperforming inflation.

Crude oil has been more stable in high-inflation periods mainly because inflation reflects the overall pace at which the prices of goods and services rise. Crude oil itself is an important component of the consumer price index, so crude oil price movements are naturally closely tied to inflation.

From a more macro perspective, strong economic growth is often accompanied by rising demand for commodities, and an overheating economy is also an important driver of inflation.

By contrast, although gold also displays solid anti-inflation performance in most high-inflation periods, the link between gold and inflation is not as direct.

As an international reserve currency, gold’s price is influenced by more factors. In addition to supply changes and geopolitical uncertainty, rate expectations and monetary and reserve policies of central banks across countries also affect its price trajectory. For example, if inflation-adjusted real interest rates rise, it effectively increases the opportunity cost of holding gold—this “non–interest-bearing asset”—which may suppress the gold price.

02

From a long-term perspective, which asset fares better against inflation?

So when we look over a longer horizon, how do these two asset classes’ anti-inflation effects compare?

The chart below shows the performance of different assets since 2005, as of March 23, 2026. As can be seen, besides cash, most investable assets can beat inflation over the long term.

Although gold has had the best long-term performance from the current point in time, prior to 2024 gold experienced nearly a decade in which its long-term returns lagged far behind A-shares. This is mainly because after gold prices peaked in 2011, they went through a long period of decline, only returning to previous highs in 2020.

Crude oil’s trajectory over this period was more volatile. Its long-term performance not only lagged significantly behind gold and stocks, but before the surge in this month, its long-term returns even fell short of bonds, and it repeatedly saw stretches of underperforming inflation.

This may challenge many investors’ long-held perception of gold and crude oil as “safe-haven” assets.

Many investors believe tangible assets are safer—especially gold—viewing it as a low-risk store-of-value instrument. But based on the long-term performance of gold and crude oil, there is clearly a major gap between this belief and reality.

Compared with traditional assets such as stocks and bonds—and including commodities such as gold and crude oil—these commodities often undergo longer and more dramatic phases of rising and falling, sometimes lasting 10 or 20 years, which is the so-called Supercycle.

For example, with gold we can see that since 1970 it has broadly gone through two full cycles of long bull markets and long bear markets.

The first bull market began in 1970. The end of the Bretton Woods system triggered a decade-long gold super bull market. But after gold prices peaked in September 1980, a prolonged bear market followed for as long as 20 years. Gold prices fell from the highs all the way down, and only stabilized and started to rebound in the early 2000s. During that period, the maximum drawdown at one point exceeded 60%.

And this round of gains that started in 2000 lasted until 2011. After that, gold entered another downward cycle. By 2015, it had retreated by nearly 40% from its peak, only returning to the prior high in 2020.

Crude oil, like gold, has also roughly gone through two major bull and bear cycles over the past 50-plus years.

Two oil crises in the 1970s drove oil prices sharply higher, and this bull market lasted until 1980. Afterwards, crude oil prices entered a sluggish period of nearly 20 years, only gradually stabilizing and rebounding in 1999.

After that, driven by OPEC production limits and China’s economic takeoff boosting growth in energy demand, oil prices embarked on a second upward cycle and reached a peak in 2008. But then the global financial crisis erupted, and oil prices entered a plunge. Since then, they have remained in a sideways-to-range-bound pattern for a long time, and they have not fully returned to the highs from that earlier period to this day.

03

In a portfolio, how should these two types of assets be used?

Overall, the experience of investing in gold and crude oil is like taking a long ride on a roller coaster. Compared with stocks and bonds, they have two distinct characteristics:

• Bull and bear markets last longer

• Volatility at the phase level is more intense—big rallies and big sell-offs are par for the course

This also reminds us that when considering investing in these kinds of assets, besides targeting their “anti-inflation” role, we must also understand they are not safe assets with guaranteed upside. In terms of risk-return characteristics, they are more like risk assets such as stocks, and volatility is the cost we must pay for holding these assets.

At the same time, the market-timing risk for gold and crude oil is extremely high. Because bear markets are so prolonged—once you misjudge the rhythm and enter near the top as the market transitions from bull to bear, you may face a situation in which you cannot break even for 10 years, or even 20 years.

Seen this way, the match between commodity investing and the cycles of one’s life income and spending is very low. Trying to beat inflation over the long term by relying on commodity investing alone is not as easy as people might imagine.

Therefore, for investing in gold and crude oil, we still need to return to the context of portfolio investing and asset allocation.

Even though they come with higher volatility and risk, gold and crude oil still have irreplaceable allocation value in a portfolio.

On the one hand, as discussed above, they have excellent investment value in certain periods—for example, during high-inflation phases they can effectively hedge inflation risk and help protect purchasing power. On the other hand, their long-term correlation with traditional assets like stocks and bonds is relatively low, so they can play a role in diversifying portfolio risk to a certain extent.

However, given their tendency for big swings, for most individual investors, gold and crude oil are more suitable to be satellite holdings within a portfolio rather than a core long-term base position.

It is recommended that you control their allocation ratio in your portfolio to 15% or lower based on your own risk tolerance. While fully leveraging their ability to hedge inflation and diversify portfolio risk, this also helps effectively mitigate the impact that their drastic price volatility can have on the portfolio.

Author | Qu Chenchen

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Responsible editor: Song Yafang