THE DIFFERENCE BETWEEN COMMODITIES AND HARD ASSETS

 

During periods of inflation both commodities and hard assets are supposed to serve as portfolio hedges.

But at the moment only one of the two are working.

That would be Hard Assets.

Why?

Quite simply because commodities are priced in dollars.  Gold is traded internationally in US dollars.  Oil is too.  So are many base metals and so are many agricultural commodities.

So right at this moment when the dollar is on an unholy tear against every other currency on earth, commodities priced in dollars are getting slammed.

Hard Assets are priced in whatever currency is in effect in the country to which you sell them.  Hard Assets in this sense are free from the constraints of the global currency system.

This is precisely one of the attributes that make hard assets so valuable during periods of sustained financial instability.  Their value is intrinsic and not tied to the value of any particular currency or financial system.

Therefor an ounce of bullion gold has lost about 20 percent of its value during the recent downturn.  However an ounce of gold with some collector value - for example short print British mint favorites, short print China mint favorites, short print Paris mint favorites, low mintage 100 soles gold coins. High grade french 100 franc angels etc etc have not lost any value..  Some are still edging up in value.

Because the numismatic value puts them into the category of Hard Asset: an asset that has artistic/historical/rarity value. Or what Marx called Fetish Value.

And as the financial stability continues as it will the value of Hard Assets will continue to rise.  

At some point the Fed will pivot, the dollar will drop shaply and dollar denominated commodities will shoot back up.

At some point China/Russia will introduce a commodity backed currency that will throw the entire global currency system into the chaos of a new phase.  Who knows how commodities will respond.

But Hard Assets will continue to rise.

The international financial system has never been in such a precarious situation.  Debt combined with DEGLOBALIZATION which makes inflation a major problem into the foreseeable future - combined with an incipient East West Global War - has created an instability unlike any seen in the modern age.

Those who don't understand the problems that accompany deglobalization will make the terrible mistake of assuming inflation is transitory/   It is not.  Yet central bank tightening will not be tolerated for long by a system drowning in debt.

Hard Assets will protect you.  It's hard to think of another asset class that might also protect you in this situation