1. Gold: Monetary Hedge
Gold pays no interest and produces no cash flow, but it has been accepted as a store of value for thousands of years. It has tended to rise when confidence in paper currencies or governments weakens.
What Drives Gold?
- • Real yields: gold has historically risen when real yields fell, since holding it costs less in lost interest. Since 2022 the link has weakened
- • Dollar weakness: Gold priced in USD, inverse correlation
- • Central bank buying: central banks, mainly in emerging markets, have bought gold heavily since 2022 to diversify their reserves
- • Geopolitical risk: Wars, debt crises, currency collapses
Historical Performance
- • 1971-1980: +2,300% (Nixon shock, stagflation)
- • 2001-2011: +600% (post-dot-com, GFC, QE)
- • 2018-2020: +70% (pandemic, negative real yields)
- • 2023 onwards: more than doubled to record highs above $4,000, helped by central bank buying, even with real yields around 2%
2. Oil & Energy: Structural Inflation Driver
Oil is an input to almost everything, from transport to plastics, so a jump in its price feeds into inflation and squeezes spending elsewhere. Several US recessions, including 1973, 1980 and 1990, followed sharp oil price spikes.
- Supply shocks: 1973 OPEC embargo → oil $3 to $12, CPI 12%
- 2022 Ukraine invasion: oil from about $75 to above $120 a barrel; US CPI inflation reached 9.1%
- Demand collapse: 2008, oil fell from $147 in July to about $33 in December as recession hit
Volatility Warning
Oil can swing 50-100% in a year, driven by global growth and supply shocks. Price moves this large are why oil is one of the most volatile major assets.
3. Real Estate (REITs): Income + Inflation Hedge
REITs (real estate investment trusts) own properties such as offices, flats and warehouses. Rents tend to rise with inflation over time. But REITs are sensitive to interest rates, and have often fallen when rates rise.
REIT Strengths
• Dividend yields typically 3–5%, above the wider share market
• Rent escalation clauses = inflation pass-through
• Some diversification, though they often move with shares
• In the US, avoid corporate tax if they pay out most of their income
REIT Risks
• Interest rate sensitivity (long duration)
• 2022: REITs -25% as rates spiked
• Sector-specific risk (office REITs collapsed post-COVID)
• Leverage amplifies losses in downturns
4. Commodities: Broad Basket
Agriculture, energy, industrial metals and precious metals. A popular "supercycle" argument holds that years of low investment in new mines, plus demand from the energy transition (copper, lithium and nickel for electric vehicles and batteries), could keep supply tight for years. It is a thesis, not a certainty.
- 2000-2011 supercycle: broad commodity prices roughly tripled as China industrialised
- 2011-2020 bear market: Oversupply, weak demand
- 2020-2022 spike: Pandemic supply shocks + stimulus
- 2023-2025 mixed: energy prices eased, while gold and some metals reached record highs
5. TIPS: Inflation-Protected Treasuries
Treasury Inflation-Protected Securities. The amount you are repaid rises with CPI, and the yield you see quoted is a real yield, around 2% in 2024–25. Held to maturity, a 2% real yield with 3% inflation returns roughly 5% a year. They are the most direct inflation protection backed by the US government.
When TIPS Have Done Best
TIPS beat ordinary Treasuries when inflation turns out higher than expected. The breakeven inflation rate (ordinary yield minus TIPS yield) shows the inflation rate the market expects. If actual inflation comes in above it, TIPS do better. In 2021 they did. But in 2022 TIPS still fell about 12%, because rising real yields outweighed the inflation adjustment: they carry interest-rate risk too.
How Real Assets Have Behaved
- Inflationary periods: Gold and energy have tended to do well while bonds struggled (the 1970s and 2021-22)
- Deflationary periods: Commodities have tended to fall while government bonds rallied
- Gold: Often moves independently of shares, which is why many institutions hold some as a form of insurance
- REITs: Sensitive to interest rates, so they have tended to struggle during hiking cycles
- Commodity supercycles: Long upswings can last a decade or more (2000-2011 is the most recent example)
Bottom Line
The pattern: Real assets have historically held their value better than bonds and cash when inflation rises or a currency weakens, and done worse when prices fall. That is why many professional portfolios hold some as insurance rather than as a source of growth.
Related
Educational content only. It describes how markets have behaved in the past and is not investment advice.