Is This The Best Gold ETF To Hedge Against Inflation As The Fed Runs The Printing Press Hot?

On March 23rd Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said Sunday night on CBS’s “60 Minutes” that “there is an infinite amount of cash in the Federal Reserve.  We will do whatever we need to do to make sure there’s enough cash in the banking system.”  Approximately 12 hours later, the Fed aggressively started a policy of “quantitative easing” or in colloquial terms printing money.  The goal of the Federal Reserve action was to clarify they will print as much money as necessary to bail out the economy and inflate asset prices. In the past year, the Federal Reserve has increased the money supply by over 25%.

So, what is the negative impact of the Federal Reserve printing money on your nest egg and inflation?  As more new money is printed, the less all of the pre-existing money is worth.  The more new money that exists from the Fed printing press, the less all of your old money is worth.

How do you protect your portfolio from eroding purchasing power-driven by the Fed print press?  Fortunately, gold has done a phenomenal job of maintaining and growing its purchasing power as the Fed has devalued the dollar over time.  The problem with gold all by itself is that while it does a great job of maintaining its purchasing power during an inflationary environment, it doesn't have a yield or generate earnings.  Bonds on the other hand generate a consistent yield, however, the principal isn't protected from the devaluation of the dollar over time.

The Strategy Shares Gold-Hedged Bond ETF GLDB has been a great solution for investors that need an inflation hedge from gold and income from bonds.  The fund pays a consistent yield from a portfolio of investment-grade corporate bonds then hedges that portfolio against inflation with gold.  Since the portfolio has a full 100% exposure to gold it is able to track the Solactive Gold Backed Bond Index.  Since Solactive started tracking data on the Gold Backed Bond Index on January 3, 2006, through its launch the total annualized return has been 14.57% annualized.  This combination of a gold hedge and bonds has beaten the total returns of both gold all by itself and bonds.

The benefits of the concept are obvious: the returns of investment-grade bonds while hedging against inflation, providing downside protection in periods of uncertainty and dollar depreciation, all wrapped up in one, easy-to-use product. 

DISCLAIMER: The Author has a LONG position in GLDB