For centuries, gold has been a go-to asset among investors worried about all sorts of financial risks. In the past decade, exchange-traded funds backed by the metal drew more money than any other commodity. Even the world’s biggest central banks hoard bullion as a reserve asset.
But when it comes to inflation, which can erode the value of portfolios that don’t keep pace with rising consumer prices, anyone who bought gold as a hedge over the past 25 years missed out on a much better deal — copper. While data show that broad commodity indexes provided the best bang for the buck during periods of rising costs in the U.S., the red metal stands out.
For every 1 percent annual increase in the consumer price index since 1992, copper jumped almost 18 percent, more than three times the 5.2 percent gain logged by gold, according to a correlation analysis of total return commodity indexes compiled by Bloomberg. Only a broader index of energy commodities, which includes oil and natural gas, performed better than copper.
Copper is “more sensitive to inflation and the dollar because of its uses and its growth with the economy,” Jodie Gunzberg, global head of commodities and real assets at S&P Dow Jones Indices, said in an interview June 15. “Investors are more comfortable with gold. When you run the numbers, gold has relatively low sensitivity to inflation.”
Measuring that sensitivity is something called “inflation beta.” The correlation of any one commodity to rising consumer prices can be volatile. For example, copper fell in 2011 even as inflation accelerated. But over time, there are patterns to the relationship that make holding raw materials a good bet when inflation is accelerating, said Mike McGlone, analyst at Bloomberg Intelligence in New York.
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