In an attempt to revitalize a battered U.S economy, the U.S. government implemented stimulus programs and essentially printed massive amount of dollars. As a result of the massive spending, the U.S. is expected to run record deficits and Moody’s is talking about downgrading the economic powerhouse’s sovereign debt.
Although price hikes have remained relatively low, stirring up an equally disturbing notion of deflation, eventually we will have to pay the price for spending our way out of the worst recession seen in the past five decades. Inflation is inevitable, but how bad will it get and how do you protect yourself when it does occur?
The Federal Reserve has pledged to continue to keep interest rates at near record lows, indicating that there are subdued inflation trends and stable inflation expectations for the near future. However, many other economists think that interest rates and prices will have to increase tremendously, eventually igniting double digit inflation. If the Fed is proven wrong, some common plays to protect against inflation include precious metals and commodities.
Here are a few possibly plays to deal with inflation:
-Gold: The most well-known hedge against inflation. SPDR Gold Shares (GLD) is probably the best way to play this because it is actually backed by physical gold bullion.
-Treasury Inflation Protected Securities: The iShares Barclays TIPS (TIP) is an ETF that invests in inflation-protected securities and adjusts its coupon payments and underlying principle to compensate for inflation as measured by the consumer price index.
-Commodities: Commodity prices generally rise when inflation is accelerating. Exposure can be gained through the iShares S&P GSCI Commodity-Indexed Trust (GSG).
