Reflation is good for commodities and could be even better for gold
The current global economic landscape indicates improving economic conditions, higher inflation and rates expectations, as well as commodity supply shortages which are likely to support commodity performance. This is reinforced by the fact that investors are increasing their allocation to commodities.[1] While broad-based commodity investments are often used as a source of returns and diversification, the benefits tend to be tactical.
Our analysis suggests that gold is still the most effective commodity investment in a portfolio as it continues to stand apart from the commodities complex. It deserves to be seen as a differentiated asset as it has historically benefited from six key characteristics:
• It has delivered superior absolute and risk-adjusted returns to other commodities over multiple time horizons
• It is a more effective diversifier than other commodities
• It outperforms commodities in low inflation periods
• It has lower volatility
• It is a proven store of value
• It is highly liquid.
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References:
[1] “Rethink, Rebalance, Reset: Institutional Portfolio Strategies for the Post-Pandemic Period”, July 2021, Coalition Greenwich (formerly Greenwich Associates).1 “Rethink, Rebalance, Reset: Institutional Portfolio Strategies for the Post-Pandemic Period”, July 2021, Coalition Greenwich (formerly Greenwich Associates).