Commodities Investments Help Hedge Against Inflation - dummies

Commodities Investments Help Hedge Against Inflation

By Amine Bouchentouf

One of the biggest factors to watch out for as an investor is the ravaging effects of inflation. Inflation can devastate your investments, particularly paper assets such as stocks. The central bankers of the world — smart people all — spend their entire careers trying to tame inflation, but despite their efforts, inflation can easily get out of hand. You need to protect yourself against this economic enemy.

Ironically, one of the only asset classes that benefits from inflation is, you guessed it, commodities. Perhaps the biggest irony of all is that increases in the prices of basic goods (commodities such as oil and gas) actually contribute to the increase of inflation.

For example, there’s a positive correlation between gold and the inflation rate. During times of high inflation, investors load up on gold because it’s considered a good store of value.