Inflation Hedging: Myths and Reality

Is gold really a suitable tool to fight inflation, and if not then what is?

Gordon Rose, CIIA, CAIA, 21 March, 2013 | 9:00AM

Many investors became concerned about inflation the moment central banks started to flood markets with cash and cut interest rates to record lows in the wake of the financial crisis. However, so far the reality is that the cheap money made available by policy makers hasn’t fed into the economic system as expected, and inflation has remained under control in most developed countries including the US and Europe, although not in the UK.

Should Investors Hedge Against Inflation?

The question remains whether investors should consider inflation as part of their investment decision processes in the first place.

Simply put, an inflation hedge is akin to paying for insurance, though with one key advantage in that even if the risk event--in this case inflation--does not materialise, investors will get money back and also have the opportunity to generate a return on the paid premium. As such, any risk-averse investor should consider protecting their portfolio against inflation.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Gordon Rose, CIIA, CAIA,

Gordon Rose, CIIA, CAIA,  is an ETF analyst with Morningstar Europe.

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