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Where are Traders Putting Their Trust?

Where are Traders Putting Their Trust?

Photo by Jp Valery on Unsplash

With the United States Consumer Price Index number reported on June 10, 2021, surging 5% in May from one year ago, it’s safe to say that inflation is a hot topic in the market at this time. For those unfamiliar with the Consumer Price Index, it is a measure that looks at the weighted average of prices of a basket of consumer goods and services, including things like transportation, food and medical care.

The report marked the fastest rise in consumer prices at the annual rate since 2008 and was higher than economists were anticipating. While the Federal Reserve continues to insist that these increases are only transitory, traders are starting to take inflation seriously by putting their trust in securities and assets that can help to reduce their risk.

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Traditionally, precious metals are considered to be a nice hedge against inflation, as they are thought to retain their value when currencies are devalued. While it is an option to consider purchasing the actual physical metals, some experienced traders use several securities to get the same exposure.

Whether it’s gold, silver or copper, there are numerous stocks and ETFs to choose from for those who are interested in hedging against inflation. ETFs like SPDR Gold Shares (NYSE:GLD) and iShares Silver Trust (NYSE:SLV) are solid options for direct exposure to the prices of those metals, and what’s nice about them is that they are highly liquid. Metals and mining stocks can be a great way to go — they tend to outperform when precious metals prices are rising. 

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One great option to consider is Freeport-McMoran Inc (NYSE:FCX), a major natural resource company with interests in copper, gold and molybdenum. The stock has rallied over 48% year-to-date, and the company adds roughly $300 million in free cash flow for each $0.10 per pound increase in copper prices.

Some traders are putting their trust in cryptocurrencies such as Bitcoin to protect their portfolios against inflation. The idea here is that since cryptos are digital tokens with prices that aren’t tied to any other asset, they might naturally rise in value along with consumer prices. It may be valuable to keep in mind that cryptocurrencies are notoriously volatile and haven’t been proven to hedge against inflation over time.

Learn how to forecast Cryptocurrency prices 1 – 3 days ahead of the market here.

Finally, it appears that quite a few traders are putting their trust in real estate, which is evident in the housing market prices and massive inflows into real estate investment trusts (REITs). REITs can be a good inflation hedge because property prices and rental income tend to rise when inflation rises.

Investors might want to take a look at REITs like the iShares U.S. Real Estate ETF (NYSE: IYR), which has rallied over 22.6% year-to-date and continues to power higher. The fact that this REIT offers a 2.05% dividend yield is also a nice plus, as it will deliver some extra income to an account as inflation rises.

The bottom line here is that inflation fears likely won’t be going away anytime soon, which is why it’s so important to learn about some of the best inflation hedges. Investors who want to stay on top of all of the rotations and market moves occurring every week might consider using a strong AI-driven forecasting software like VantagePoint combined with some of the basic inflation hedge concepts above.


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