If investors agree that the Fed: a) may want to have - or at least accept - higher inflation; and b) may not readily see the warning signs of higher inflation, then it appears to us prudent to take the risk of higher inflation into account. Indeed, for those managing money on behalf of others, it might be their fiduciary duty to take that risk into account. Those that ignore the risk of inflation might do so at their own peril. Many investors might feel they can take action once inflation is obvious. "Obvious" is in the eye of the beholder: just as we preferred to be early in warning about the crisis in 2008, it appeared rather challenging to reposition one's portfolio in
October 2008. Gold has gone up by a factor of about 7 since its lows. The dollar has fallen relative to a basket of currencies over the past 10, 30 and 100 years: in our assessment, we simply have the better printing press. Hedging inflation risk isn't about being right about the future; it's about the risk of being right.
Axel Merk is president of Merk Investments, manager of Merk Funds, is an authority on currencies and a pioneer in using strategic currency investing for diversification and down-side protection. Merk is an expert on the global economy, macro trends, monetary policy, and the implications to the U.S. dollar and investing.