- Soaring U.S. inflation has investors pouring into gold and other inflation-hedging solutions
- Over the long run, equities have been the most reliable hedge against inflation
With the fastest pace of U.S. price increases in four decades, investors are actively searching for assets to weather the market storm, including in assets such as European equities, gold and even Asian resource companies.
Given how the central banks of the U.S. and Europe have embarked on relentless money-printing exercises in the over a decade since the 2008 Financial Crisis, prolonged underdevelopment of commodity extraction could set the existing players up for a massive windfall.
Inflation adjusted U.S. 10-year Treasury real yields have already jumped to -0.421% last Friday, the highest since last June.
But while investors are looking for cover for inflation, and the February print is likely to reinforce expectations of stubbornly higher prices, where they go from here on out is probably more relevant because the risk of policy mistakes is substantially higher.
Either the Fed will tighten too much and growth slows, which will require policymakers to backtrack, or it’ll be too slow, and real rates will remain firmly negative – both outcomes which will be positive for real assets, including gold, silver, real estate and commodities.
Ironically, cryptocurrencies, and in particular Bitcoin, may enjoy a reprieve from the recent bearishness, provided that investors come to some sort of agreement on the narrative behind the digital asset class – whether as an inflation hedge or a full-on risk asset.
Some suggest that as long as a recession is not imminent, markets are likely to be able to handle slightly higher rates without breaking down because ultimately, where else will investors put their money?
And so investors who are really looking for an inflation hedge can still rely on equities, provided that they pick them up regularly on pullbacks.
While assets such as gold have at best a tenuous claim to protecting against inflation (there is ample data that suggests it only works over extended periods of time), stocks have performed reliably and outperformed inflation.
