A study by Alliance Bernstein found that of all asset classes, commodity futures had the highest inflation beta (a measure of how sensitive an asset's price is to changes in inflation).
Fund manager Alex Krainer notes several studies showing managed futures – referring to investment funds that provide exposure to commodity futures – were hands-down the best way to survive financial accidents and recessions.
Perhaps the key risk emerging from the conflict in the Middle East between Israel and Iran is inflation. Brent crude oil prices have retreated to $65 a barrel (from $76) since the cessation of hostilities between the two countries, but it would be foolish to assume all is returning to normal. The seeds of a wider conflict may well have been planted with what we witnessed in June. Should there be a resumption of hostilities, oil prices will climb again.
In the 1970s, inflation averaged 9% in USD terms, but investors lost 65% of their wealth in real terms based on a 60-40 stocks-bonds split. Should war resume, we can expect inflation to move higher and it could well be worse than the 1970s.
Krainer believes commodities offer the best possible hedge against inflation and, historically, that is true, But a better hedge (based on a shorter history) is bitcoin.
The table below speaks for itself:
Bitcoin performance
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