Note: This text is a translation from the original language, German.
Inflation appears to have arrived and is here to stay. While many economists, central banks, and economic researchers saw things differently just half a year ago, consumers are now feeling it directly in their wallets – whether at the gas pump, in their gas bills, or when buying groceries. Sharp price increases have driven Germany's inflation rate to its highest level in nearly 50 years. In May, consumer prices were 7.9 percent higher than in the same month of the previous year, according to the Federal Statistical Office, causing money to melt away.
At the same time, a new fear is appearing on the horizon: stagflation! This is what experts call the combination of rising prices with a stagnant or even shrinking economic development. Because many investors have only known the extremely expansive monetary policies of central banks and falling interest rates in recent years, they have overlooked the risks. The balance sheets of the world's major central banks have never been so huge. The balance sheet of the US Federal Reserve (Fed) is currently around $9 trillion. This is about ten times the amount that was common before the 2008 financial crisis. As in the financial crisis, the Fed bought bonds massively during the COVID-19 pandemic. The expansion of the money supply inevitably leads to high inflation rates.
Edmetals and Commodities as Portfolio Supplements
To protect themselves against escalating currency devaluation, investors should seek alternatives for wealth protection. In their recent precious metals study "In Gold We Trust," the Liechtenstein asset management firm Incrementum states: "Stagflation is the blind spot of most broadly diversified portfolios. Precious metals and commodities can be an excellent addition in this environment." Normally, however, interest rate hikes are bad for the price of gold, as gold itself doesn't yield interest or returns.
The World Gold Council states: "Weak gold performance was mostly observed ahead of interest rate hike cycles and less so after the US Federal Reserve raised interest rates. Compared to US equities, gold performed significantly weaker both twelve and six months prior to an interest rate hike cycle, while six months after the start of an interest rate hike round and twelve months thereafter, gold outperformed US equities and the US dollar." In the current situation, gold could be a good hedge against stagflation, according to experts. In the end, it's a bet that central banks will fail on the tightrope they're walking: high inflation will persist despite interest rate hikes, and economic growth will falter.
Gold as Inflation Hedge
Gold has maintained its purchasing power over millennia. Need an example? 2500 years ago, a troy ounce of gold could buy 350 loaves of bread. And today? Approximately the same, which is why the crisis metal is often regarded as the world's hardest currency and the best inflation hedge.
The addition of precious metals to a portfolio makes sense, as is evident from the experiences after 2001 and 2007 when gold and silver surged while stock markets delivered significant interim losses to investors. The overall balance since 2000 clearly supports an allocation in the portfolio: gold has outperformed the broad equity market in the last 22 years, increasing by an average of 9 percent per year, while the MSCI World rose by 5.2 percent annually since the turn of the millennium.
Diverse Opportunities for Gold Investments
The economic disruptions caused by the COVID-19 pandemic have boosted gold demand since spring 2020. In August 2020, the world market price for a troy ounce exceeded the $2,000 mark. Afterward, it declined slightly. This year, the record for gold in euros was reached in March, with a price of €1,880 per troy ounce. The current price is €1,738.
Among the top 10 gold funds is the Commodity Capital Global Mining Fund:
Die 10 besten Goldminenfonds der vergangenen drei Jahre - Seite 3 | DAS INVESTMENT