BlackRock Sees Merit In Owning Gold
By GCRU Gold News on Thursday, January 26 2017, 14:32 - Permalink
Up until recently consumer expectations for inflation remained muted. This was arguably a function of plunging oil and gasoline prices, which seem to exert an oversized importance in consumer perceptions of inflation. With oil and gasoline more stable, expectations are changing. The University of Michigan’s one-year inflation expectation survey is now at 2.6%, up 0.4% from the previous month.
None of this signals ’70s style inflation; it does suggest inflation may surpass still modest market based expectations. While 10-year inflation expectations, measured by the Treasury Inflation Protected Securities (TIPS) market, recently rose to 2.05%, they remain well below the 2.6% level reached in early 2013, a time when core inflation was roughly 50 basis points lower than it is today.
To the extent realized inflation and inflation expectations continue to rise, investors may want to consider several themes in their portfolios: a preference for TIPS over nominal Treasuries, an overweight to financial stocks, typically beneficiaries of higher interest rates, and an underweight to bond market proxies, such as utilities and consumer staples. Finally, should inflation expectations rise faster than nominal rates, gold is likely to continue to merit a place in most portfolios