Inflation and Commodities

Fundamentals of Market Investing by Adam J. McKee

Commodities can benefit or lose out to inflation depending on the specific type of commodity.  Gold and other precious metals have long been considered a good hedge against inflation, rising in value as the dollar falls.  On the other hand, consumable or perishable commodities such as wheat, livestock, or oil tend to do poorly for investors and are not effective hedges against inflation.  Dealing in commodity futures is a dangerous prospect, and certainly cannot be recommended for the retirement investor.

However, many portfolio asset allocation strategies use exposure to gold as a hedge against inflation, including risk parity strategies.  We will consider the wisdom of buying commodity mutual funds as parts of a well-balanced portfolio in a later section.  Hoarding gold coins and the like are options, but they usually aren’t very profitable because of the costs of buying the physical gold, transporting it, storing it, and selling it again when you need liquid money.  In other words, “shipping and handling charges” eat away your profits.


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