History provides some idea as to what we could expect. Potentially, such a future period might most closely mimic the eighteen months ending on 2/28/1951. During this eighteen month period, unannualized inflation and asset class returns were as follows:
Just prior to the inception of this eighteen month interval, inflation had been running at a quite benign 1.3% rate (over the preceding eighteen months), much as it is today. But by the 2/28/1951, the rate of inflation had shot upward by +6.7% (i.e., 6.7% = 8.0% minus 1.3%). This is the sort of environment during which one would expect commodities and precious metals to perform well. As advisers to our clients, our role is to help them understand the type of environment during which such specialized asset categories will outperform. History demonstrates that they will lag and underperform unless we experience a sufficiently large spike upward in the rate of inflation (as opposed to a simple spike upward in the price level) - we require a large increase in inflation, not just a high level of inflation.
Rob Brown, PhD, CFA is chief investment strategist at United Capital Financial Advisers, LLC.