As analysts examine the current inflation cycle, there is talk that the commodity bull market will be extended and that gold will continue to be an investment option for many retirement savers.
This is despite the feeling that the recent inflationary period may be nearing an end.
The rate hike appears to have helped contain price pressures that had pushed the annual consumer price index (CPI) above 9% (1).
But the latest data seems to show that inflation is not actually over. Core CPI (not including volatile food and energy prices) accelerated in September from 3.2% to 3.3% year-on-year. (2)
The problem is that a variety of factors other than very high inflation can combine to create even greater price pressures, which can be called “structural inflation.”
Real assets such as gold can help hedge against inflation, so during times of high inflation such as today, products containing precious metals can perform better than other more traditional financial assets.
Two reasons why gold is attractive in a commodity bull market
Commodities can be positioned as a hedge against inflation, as their prices tend to rise when demand for the final products used in their production increases.
Additionally, inflation can have a negative impact on stocks and bonds because upward price pressures can undermine the future value of the cash flows paid by financial assets (3).
It is for these two separate reasons that a commodity such as gold can effectively diversify a portfolio and reduce overall volatility. (4)
Additional benefits for commodities include the fact that they have continued to outperform (relative to bonds) since the global health crisis triggered a period of high inflation.
Analysts at Bank of America (BofA) recently suggested that it may be time for investors to seriously consider exchanging bonds for commodities as a 40% allocation in the classic 60/40 portfolio model. He recently suggested that there might be, declaring:
“…the 2020s secular bull market is only just beginning, as debt, deficits, demographics, reverse globalization, AI, and net-zero policies all point to inflation.” (6)
Other prominent analysts agree with BofA. (See full article for details.)
Featured Partners (Advertisement)
Commodity bulls benefit from the ‘calm before the storm’
Philippe Gissels, BNP Paribas’ chief strategy officer, told Kitco News that the current state of inflation represents “the calm before the storm.” (7) Other analysts agree.
They argue that the Fed’s 2% goal is unlikely to be met due to complex factors such as rising energy costs, moves toward deglobalization, and an explosion in government spending.
How does Gissels think it could impact commodities like gold?
“I think we’re still in the early stages of what will be a major commodity bull market,” he said, adding that he thinks inflation will eventually “run out of control” due to monetary policy and government debt. (8)
Analysts indicate preference for precious metals among this commodity bull
In addition to his positive assessment of commodities in general, Gissels does not hesitate to be more specific about his preference for gold, based on its recent performance and the strength shown by commodities overall.
“When gold was $1,600 or $1,700 an ounce, everyone said, ‘That’s totally crazy.’ Now let’s go to 3,000 yen. But that’s how bull markets work.” (9 )
He also prefers silver for its role in energy. He sees silver reaching more than $50 an ounce. ”(10)
Other premier analysts currently choose precious metals as a “commodity of commodities” in terms of expected performance, two of which are Goldman Sachs (11th) and Société Générale (SocGen). be. (12)
Gold investments chosen by smart investors today
More recently, the 1997 tax reform made it easier for individual investors to safely trade high-quality physical precious metals through an often-overlooked change (13) (for tax implications) (Be sure to discuss this with a qualified financial professional.)
Because this is a relatively new way to diversify and protect your retirement savings, not all investors are familiar with this option.
And alternative investment options are not suitable for everyone. However, given the significant economic and financial changes Gissels and others are currently talking about, retirement investors may want to take a closer look to determine whether gold investing is right for them during this commodity bull market. Maybe it’s time to take a look.
Quote:
(1) Bureau of Labor Statistics, “Consumer Price Index Archive News Release” (accessed 10/10/24).
(2) Jeff Cox, CNBC.com, “Inflation hit 2.4% in September, better than expected. Unemployment claims are highest since August 2023,” accessed October 10, 2024. Sun 10/10/24).
(3) Pimco.com, “Commodities” (accessed 10/10/24).
(4) Same as above.
(5) Sagarika Jaisinghani, BNN Bloomberg, “Swap bonds for commodities in 60/40 funds, says BofA strategist” (August 30, 2024, accessed 10/10/24).
(6) Same as above.
(7) Kitco News, “‘First Inning’ of Massive Commodity Bull Market as Prices Double or Triple – Philippe Gijsels” (October 3, 2024, accessed 10/10/24).
(8) Same as above.
(9) Same as above.
(10) Same as above.
(11) Matthew Fox, Business Insider, “3 Reasons to Stack on Gold, a Metal Poised to Rise in 2025, According to Goldman Sachs,” September 3, 2024, accessed 10/10/ twenty four).
(12) Ernest Hoffman, Kitco, “Gold to average $2,800/oz by 2025, now representing 100% of commodity allocation – SocGen” (September 16, 2024, accessed 10/10 /twenty four).
(13) TaxNotes.com, “Taxpayer Relief Act of 1997 (PL 105-34)” (August 5, 1997, accessed 10/10/24).
This article is for informational purposes only. The opinions and analyzes expressed herein are those of the author and do not constitute financial advice. The Jerusalem Post (JPost.com) does not endorse or recommend any investments based on this information. Investors should consider their financial situation, investment objectives, and risk tolerance before making a decision. We recommend that you consult a qualified financial advisor. JPost.com is not responsible for investment losses from the use of this information. The information provided is for educational purposes only and should not be considered as trading or investment advice.
Source link
