The stagflation spectre: Why gold’s time may have come – by Avener Mandelman (Globe and Mail – January 6, 2016)

I’ve been a gold bear for four years, but no longer: I think gold may soon rise significantly. Why did I change?

In a word: Stagflation. It is the toughest investment regime, composed of inflation and economic stagnation. The last time we saw this was in the late 1970s. And it’s coming again. In such a period, one of the only investments that appreciates is gold.

There are four investment regimes in all, defined by economic growth and inflation: In high growth and high inflation, real estate and resources do best. In high growth and low inflation, growth stocks outperform. Low growth and low inflation is where bonds shine. And low growth and high inflation is where most stocks underperform, but gold does best.

Knowing which regime we are currently in isn’t hard. The harder part is sticking to the best investments for that regime and not trading them. What’s the hardest part? Knowing when a regime is ending, and adjusting your portfolio in time.

Such a change is upon us: from high growth and low inflation, to low growth and high inflation – i.e., stagflation. Hence my changed view on gold.

Just how certain am I that growth is slowing and inflation awakening? The evidence is piling up for both.

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