As Inflation Fears Persist, Soften the Blow with Commodities

As the capital markets start to fret over rising interest rates, investors can position themselves to soften the blow with commodities, including the Direxion Auspice Broad Commodity Strategy ETF (COM).

“Prices for the building blocks of the economy have surged over the past year,” a Wall Street Journal article explained. “Oil, copper, corn and gasoline futures all cost about twice what they did a year ago, when much of the world was locked down to fight the spread of the deadly coronavirus. Lumber has more than tripled.”

COM seeks to provide total return that exceeds that of the Auspice Broad Commodity Index over a complete market cycle. The index is a rules-based index that attempts to capture trends in the commodity markets. Right now, the sector spread includes a mix of metals, agriculture, and energy.

Rising prices are already making its way into key economic data like the consumer price index (CPI). Although the Fed kept rates steady at its last interest rate policy meeting, that could change this year.

“Figures published on May 12th showed that America’s consumer-price index rose by 4.2% year-on-year in April, a rate not seen since 2008, and considerably higher than the 3.6% that had been expected by forecasters,” an article said in The Economist.

COM Chart

Where Do Rates Go from Here?

While 2021 saw a continued recovery from the latter half of 2020, inflation fears have been sparking volatility as of late. As commodity prices rise and stimulus dollars circulate through economy, the question now is where rate go from here.

“Soaring commodity prices have stoked fierce debate on Wall Street and in Washington, D.C. over inflation and whether the fiscal and monetary policies intended to buffer the economy during the pandemic might now risk hobbling the recovery,” the WSJ article said.

In the meantime, investors might as well let inflation work in their favor. While there are other options such as gold or bonds, commodities are another weapon in the inflation-hedging arsenal.

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