Gold has soared on learning of inflation in the United States. Just at the moment in which we know the data we see how gold is launched upwards to look for maximums of the last year.
Markets are beginning to doubt the transitory nature of inflation. US CPI data has surprised to the upside this week, generating a sell-off in bonds and pulling stocks back. Investors are beginning to ask questions and move some of their capital to assets that have performed better during periods of higher inflation gold ira companies. Although there is still no certainty about the future evolution of prices, what can already be said is that inflation is lasting longer than expected and is reaching levels that were forecast by very few institutions.
The IPC stood at 6.2% in the US in October, a maximum not seen since December 1990. This data caused a slight tremor in the markets that, however, shows where ‘the shots can go’ if things turn it gets ugly with inflation. Bonds fell significantly (interest rose), stocks also fell on Wall Street, while gold was the big winner of the day.
Sean Markowicz, head of strategy, studies and analysis at #Schroders, has prepared a kind of manual or note in which he describes the behavior of each type of asset according to the inflation cycle. This expert explains that, in general, there are four different phases of the economic cycle based on the evolution of production and inflation: goldilocks or goldilocks (when the economy is neither too hot nor too cold, so it supports growth noticeable with low inflation), disinflation, reflation and stagflation. In each cycle you have to be invested in some assets or others to take advantage of market movements.
The #Schroders research department has calculated what the real return has been (discounting inflation) in each part of the cycle over the last decades. For example, during periods of #stagflation, gold (+22.1%), commodities (+15%) and real estate investment trusts (REITs) (+6.5%) have been the best performers they have behaved On the other hand, equities have tended to suffer (-1.5%).
“This makes sense, as gold is often seen as a safe-haven asset, so it tends to appreciate in times of economic uncertainty. Real interest rates also tend to fall in times of stagflation, as inflation expectations rise and growth expectations fall. Lower real rates reduce the opportunity cost of owning a zero-return asset like gold, making it more attractive to investors,” Markowicz says.
Commodities (for example, raw materials and energy) are a source of costs for companies, as well as a key component of inflation rates. Therefore, they tend to do well when inflation also rises (often because they are the cause of rising inflation). However, returns are weaker during periods of stagflation compared to periods of reflation, where they benefit from the additional tailwind of increased demand and the overall good economy.