Inflation Hedging in Strategic Asset Allocations: Gold or Something Else?

Source: By Roberto Croce, Head of Risk Parity and Alternative Risk Premia, Newton Investment Management North America LLC.


Inflation hedging is of particular interest to investors today, as recent consumer price inflation numbers show inflation rising faster and higher than at any time since the global financial crisis more than a decade ago. In this paper we answer the following questions:

Question 1. Does inflation only matter to investors with liabilities denominated in real dollars?

Answer 1. No. We find that the hedge/no hedge decision does not depend on whether investor liabilities are denominated in real or nominal US dollars. In this paper we will show that high inflation periods are almost as bad on a nominal basis as they are in real terms, particularly when the cash return is zero.

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