The Best Way to Trade During Times of Inflation

For months, financial markets have been gripped by inflation concerns as central banks and economies struggle to keep up with rising demand and dwindling supplies.

This trend has been best captured with commodities, triggering an ‘everything rally’ and surge of prices across the board of essentially all raw materials.

Investors have seen first-hand the panic triggered by inflation as the US Federal Reserve has on a monthly basis tried to calm these concerns.

Rising US bond yields have added another layer of complexity, with 10-year yields at multi-year highs.

As such, investors and traders are looking for ways to trade the market, whilst avoiding being impacted by inflation.

There are several plays and angles to take, including assets that specifically benefit from inflation and a weakened US dollar.

Focus on Commodities

This includes precious metals and commodities, which have historically benefitted from mounting inflation. In particular, gold and silver routinely have performed well during bouts of inflation, with each representing a different perspective for traders.

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Gold is a pure hedge against inflation that is also seen as a safe haven asset. By extension, silver benefits from the same weakness in the US dollar, while also having the added upside as an industrial metal.

As a primary component of new green technologies such as electric vehicles (EVs) and solar, silver looks to be positioned nicely in H2 2021.

Looking further, most investors are already familiar with the run on industrial commodities such as base metals and raw materials.

Steel, copper, iron, and others are all surging year-to-date, with the prospect for increased demand helping insulate prices in the near- and medium-term.

With economies still re-opening from the Covid pandemic and industrial output still not near full capacity, these commodities could be a strong play looking forward as supply is nowhere near the level of demand currently.

Energy Back in Play

It seems hard to believe given the headlines of negative oil prices a year ago, but the energy sector is back in play as inflation has set in.

Pegged as one of the best performing sectors during times of inflation, oil prices have once again surged to over $70 a barrel in June.

This sector has historically been one of the biggest benefactors during a run on inflation and this has played out during 2021.

Though the US Federal Reserve has championed a steady approach in its handling of monetary policy, it is clear that inflation has become a real force that is not going away.

With prices for fuel already high and the summer months approaching, typically a harbinger for increased demand, oil’s immediate future looks bright.

Are you looking to trade any of these assets and help insulate your portfolio against inflation concerns?

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