The Fed’s preferred gauge, the consumer price index (CPI), rose 2.1% year-over-year in December. Then there’s the New York Fed’s recently launched Underlying Inflation Gauge (UIG), which claims to forecast inflation better than the CPI by taking into consideration a “broad data set that extends beyond price series to include the specific and time-varying persistence of individual subcomponents of an inflation series.” The UIG rose nearly 3% in December. And finally, the alternate CPI estimate, which uses the official methodology before it was revised in 1990, shows that inflation could be closer to 10%.
Whichever one you choose to look at, though, they all indicate that inflation is trending up.
Making predictions is often a fool’s game, but I believe that after lying dormant for most of this decade, inflation could be gearing up for a resurgence on higher wages and borrowing costs. Now might be a good time to rebalance your gold holdings to ensure a 10% weighting.
“This pick-up in inflation and inflation expectations is positive for gold,” says BCA, “which we’ve shown to be an attractive hedge against rising prices.”
Long-Standing History of Performance
Besides being favored as a safe haven in times of crisis, gold has a history of attractive performance over the long term. Compared to many other asset classes, the yellow metal has been very competitive in multiple time periods.
Since 1971, when President Richard Nixon finally took the U.S. off the gold standard, gold has outperformed all asset classes except domestic and international equities, as of December 31, 2017. In the 20-year period, gold crushed domestic and foreign stocks, bonds, cash and commodities. Most impressive is that, in every period measured above, the precious metal has beaten cash, bonds and commodities.
Having a 5 to 10% weighting in gold and gold stocks during these periods could have helped investors minimize their losses in other asset classes.