In truth, while gold may have a role in protecting against inflation, there are plenty of alternatives. Here are five you should be thinking about -- particularly when you bear in mind that gold is already close to an all-time high.
Real-Estate Rebound
One, property. The price of real estate won’t always move exactly in line with inflation. And you might want to steer clear of the markets where there has yet to be much of a retreat from the exuberant prices of 2006 and 2007. Even so, if there is more money chasing a static amount of land and buildings, prices are going to rise.
Two, oil. They used to call it black gold and maybe they should again. It has already stopped being just stuff we put in our cars, and use to heat houses, and become an investment asset in itself. How else can we explain the fact that oil has ticked up past $70 a barrel even while we’re living through the worst global recession since World War II? Oil is already, in effect, an alternative to gold. The one difference is that you can put it in your car and drive somewhere -- making it far more useful than stuff good for little more than dental fillings and trinkets to wear around your neck.
Stock Picking
Three, equities. Moderate, persistent inflation in the 3 percent range is good for the kind of big, blue-chip companies that dominate the major global stock markets. They can edge up prices along with everyone else. And they can usually get away with increasing wages just a bit less than inflation, so cutting labor costs as well -- particularly as unions are far less powerful than they used to be. In those circumstances, the shareholders should do fine -- and their equities will more than keep up with rising prices.
Four, luxury goods and collectibles. Once inflation takes off, it is only real assets that will hold their value -- everything else is just paper, and that will be of dwindling use. Assets don’t get much more real than historic art, valuable antiques, vintage automobiles or fine wines. They should start to soar in price as the mega-rich realize they are among the few ways to protect wealth. And, heck, if you get it wrong, you can always hang them on the wall, or drink them.
Five, private-equity funds. This one might not be obvious. But a leveraged buyout firm buys well-established companies, in basic industries, and then loads them up with lots of debt, while hanging on to a little bit of equity. Inflation will effectively wipe out all that debt. The result? The equity that is left over will be worth far more.
