Roqqett Blog

November 18, 2021
Author: Sara Mucciolo

Glenn Smith ft. Finimize: On Commodities In Times Of Inflation

Following the Finimize Podcast, we've outlined our CEO & Founder, Glenn Smith's, points on inflation.

Quick Summary

  • Historical context and current concern around inflation
  • Commodities as a defence mechanism against inflation
  • Different ways to invest in commodities and current interesting trades to have a look at
shopper

1) Inflation is in the news at the moment. Can you put that in historical context and if we should be concerned about inflation now?

Glenn Smith:

Inflation has generally been under control since the '80's, but that does not mean it cannot come back. Any periods of inflation have been brief and transitory, there are concerns that might not be the case now.

Current reasons for inflation include:

  • Huge fiscal stimulus from government handouts during Covid, due to more money currently being in circulation.
  • Disruption of supply chains due to Covid and a move to less globalisation.
  • Energy prices due to increased demand post covid and a shortage of supply (such as Russia moving to green).

These could be transitory, but there are increasing concerns they might not be. Increasing wage demands drives up costs of goods and is a reinforcing upwards spiral. Deglobalisation was highlighted as a factor in Covid and geo-political risks are keeping that impulse in place, which will drive up prices as good are more expensive to produce and there is less competition

So is inflation here to stay? Still hard to say, but keep an eye on the monthly inflation number both in the UK but also in the US and the EU.


2) So ok, inflation is high and might be a problem. One of the portfolio components that people say can help defend against inflation is commodities. Why is that?

Glenn Smith:

So what are commodities? Materials we consume such as industrial metals, coffee, wheat, oats, soybeans, cotton, sugar, as well as precious metals like gold, silver and platinum. The list goes on.

Historically commodities have a tendency to appreciate when there is unexpected inflation. Vanguard just did a study of the last 40 years analysing relationships between unexpected inflation and commodities. It suggests that a 1% rise in inflation produces a 7-9% rise in commodities.

In comparison, equities have a less obvious response, they used to go down through the 80's and 90's in response to inflation shocks, but since the financial crisis which caused monetary stimulus through lower rates, the effect has been more muted and mildly positive, but not as strong as commodities.

To sum up, it's worth looking at commodities as a component in your portfolio.


3) What different ways are there to invest in commodities and what trades look interesting at the moment?

Gold ETF Graph

Glenn Smith:

So you don't want to buy a barn load of wheat as a private investor, it's not exactly easy to store. Financial instruments now make it easy to get exposures to commodities. As such I will outline 3 potential things that are worth considering now:

A diversified ETF in commodities such as the iShared Diversified Commodity ETF (ICOM)
  • Tracks Bloomberg's Commodity Index
  • up 43% YTD

Gold ETF
  • The traditional inflation hedge
  • Gold breaking out of a bull flag on the charts (shown above)
  • Invest via a Gold ETF, one is iShares Physical Gold ETC (USD)

Lithium
  • Getting exposure to the rise of electric cars and batteries in general
  • Already had a big rally but still going strong with new EV companies growing strongly like Rivian and Lucid
  • Global X Lithium ETF is a way to invest in Lithium

Slightly controversial ... Uranium
  • Nuclear has a place in the green energy transition
  • Global X Uranium ETF is a way to play that


How can Roqqett help?

With inflation making your cost of living higher, it's always good to be aware of where your salary is going every month. We can help you do that with Roqqett.

The average consumer now has 2.5 bank accounts. Roqqett enables you to analyse your spend across all those accounts, including banks and credit cards. We give quick insights into your spending categories needing no effort from the user, just connect your accounts using open banking. It is secure as Roqqett is a regulated company by the FCA to be able to provide that service.

So please check it out and give us your feedback.

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