Stig Brodersen brings back one of our most popular guests, investment expert Lyn Alden. Together, they explore the role of gold and commodities investing in a period of inflation.
Why Do Commodities Perform Well In Inflationary Periods?
Commodities tend to do well in inflationary periods almost axiomatically because in a period of inflation, things are going up in prices, particularly commodities. Inflation is a result of issues on the money supply side, and then also something related to CapEx and under supply on the commodity side.
Both stocks and bonds have in common that they do very well in disinflationary regimes, basically stable monetary conditions, good long-term planning and pricing power, whereas commodities are the best hedge in those more inflationary environments. And so, there's multiple ways to defend against inflation, but having commodities is one of the cleanest ways to do it.
Lyn specifies that gold and commodities can almost be considered two different asset classes because although gold technically is a commodity, it has more characteristics of a currency. Gold gives us a long-term protection against inflation. If you have fiat currencies going down in value, gold over the long-run has historically held up equal to, or actually better than official CPI, closer to money supply growth. And you can stock gold for a long time in a small amount of space. Right now, when we're seeing currency crises in different countries (bank bail-ins, hyperinflation, double-digit inflation): it is a destruction of the currency. When there is a truly inflationary or really problematic financial environment, you can't necessarily 100% trust your cash assets, even your stock assets, whereas having physical self-custody gold, or gold in a private vault for example, is just another level that those authorities would have to go through to defraud you, to take your assets or forcibly convert them. In that way, gold serves as insurance. Whereas commodities (investments in oil features or oil stocks or copper stocks...) are not giving that defence against that confiscation type of approach.
Others topics are addressed such as the manipulation of commodities markets, why you should compare the price of gold to real interest rates, the gold to silver ratio...
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