Gold is a popular topic nowadays. You can't turn on the television without hearing about it. How's the sales pitch go? "Gold has never been worth zero." Well that's comforting to know (my house has never been worth zero either). I don't actually think gold prices will go to ZERO. However, I do think gold prices could go down.
The gold rush
My concern is inflation fears may lead to inflated gold prices as investors flock to the highly heralded hard asset (I just saw two gold commercials while writing this, no joke).
Inflation concerns may be legitimate. But gold isn't the only inflation play, only the most obvious one. Stocks are a viable option as well. But not all stocks. Let's isolate which stocks perform best in an inflationary environment and why.
Buy what you buy
The best performers are consumer staple stocks. Demand for consumer staple products remains relatively stable as prices increase. Why? Because consumer staple goods are items of necessity. Think drugs, tobacco, and food. It makes sense; people won't stop eating because food prices rise.
This allows consumer staple companies to pass on higher costs to consumers because of inflation, whereas, companies that sell consumer discretionary items (like a Coach purse) may see lagging sales. The goal is to find a highly demanded, hard-to-replace necessity items to serve as our inflation hedge.
An a-maize-ing investment
There is one product used in virtually everything from food to fuel. Corn. We not only consume corn, we consume things that consume corn. It's safe to say an inflationary increase in the price of corn would not significantly affect demand. Historically, a 1% increase in the price of corn results in only a half percent decrease in demand. Knowing this, corn companies will simply pass on rising costs to corn consumers.
In short, corn companies should provide a good inflation hedge. There are two companies and one ETF with deep roots in corn that I find interesting: Archer-Daniels-Midland
Teucrium Corn is the purest play because it's a fund that owns near- and medium-term core futures contracts.
If you're looking for an alternative to gold, these three are a good place to start your research.
By the way, I just saw another gold commercial.
