The article is from Barry Ritholtz's Big Picture Blog. Interesting conclusions, but the time frame and scale used on the charts are suspect in my mind. In addition, there is significant divergence is saying there is little to no correlation or more causation versus some co-movement. Not to say that TIPS are not a fair investment if you expect higher inflation, but the skeptic in me wonders if Merrill Lynch has a lot TIPS inventory.
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Opened-ended QE is causing some investors to worry that inflation will get out of hand. That has helped drive gold prices higher, as investors look for places to hedge against a potential rise in inflation. As the nearby charts illustrate, the link between inflation and gold is very limited. First, gold is not part of the CPI bundle, so a movement in gold will not impact inflation. Second, gold is not a good predictor of inflation. As the nearby charts illustrate, gold prices are much more volatile than headline inflation. Finally, with the correlation between gold and inflation on a yoy basis of just 0.42 and on a month-over-month basis of 0.11, gold is not a great hedge against inflation. Investors would be better off owning TIPS if they are looking for protection against a potential rise in inflation.
Click to enlarge:
˜˜˜
Source:
BofA/Merrill Lynch
September 17, 2012
Morning Market Tidbits
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Opened-ended QE is causing some investors to worry that inflation will get out of hand. That has helped drive gold prices higher, as investors look for places to hedge against a potential rise in inflation. As the nearby charts illustrate, the link between inflation and gold is very limited. First, gold is not part of the CPI bundle, so a movement in gold will not impact inflation. Second, gold is not a good predictor of inflation. As the nearby charts illustrate, gold prices are much more volatile than headline inflation. Finally, with the correlation between gold and inflation on a yoy basis of just 0.42 and on a month-over-month basis of 0.11, gold is not a great hedge against inflation. Investors would be better off owning TIPS if they are looking for protection against a potential rise in inflation.
Click to enlarge:
˜˜˜
Source:
BofA/Merrill Lynch
September 17, 2012
Morning Market Tidbits
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