6. Commodities
One of the major commodities that tend to hold value and at least keep pace with inflation is gold. Between 2016 and 2022, the gold price in US dollars nearly doubled to top out at $2,067 an ounce in August 2020. It is currently at $1,937 an ounce, bouncing back from a dip at the end of last year.
Silver has proven to be a little volatile, but in addition to its status as a precious metal, silver’s price is underpinned by its many industrial and medical uses.
You can choose to buy unleveraged “physical gold” exchange traded funds, which essentially invest your money in physical gold that is stored in a vault somewhere in a major city such as New York or London. Or, you can instead buy “synthetic gold” – essentially over-the-counter derivatives based on gold.
Professional wisdom suggests that buying into physical precious metal ETFs makes more sense at present because of the dangers of corrections in derivatives pricing associated with new commercial banking solvency rules bound into Basel III, which will limit banks from increasing their exposure to derivatives further.
While you are investigating commodities, it is worth considering investment in some of the “rare earths”, which are finding increasing demand as we all transition over the next 10 years from driving around in internal combustion engine vehicles and move to electric vehicles.
EVs require batteries, which themselves are built with lithium, cobalt, nickel, manganese, graphite and cerium rare earths, among others. It is possible to invest in a basket of rare earths, again through ETFs.
It is also worth considering the inevitable demand for copper, as property owners will be upgrading the wiring in their homes and offices to enable rapid charging of EVs, and eventually to move spare electricity from a vehicle or home electricity storage units into local microgrids, which will be established to trade locally produced power – from solar panels, windmills, air source and ground source heat pumps, and so on.
7. Going green
Finally, it might also be worth putting any cash savings (which are anyway losing value in a high-inflation economy) to work to invest in solar panels on your roof now that prices of photovoltaic panels have fallen.
Others may consider buying shares in wind farms, or even owning shares in wind turbines themselves. Energy, in its various forms, is a major component of the calculation of CPI inflation, so investing in energy could deliver a useful degree of inflation protection to your portfolio.
