Triangle Investors

Prepare for Inflation May 20, 2009

Posted by Andy Robinson in : Uncategorized , trackback

In attempting to fix our economic problems of debt and over-consumption, the US government is flooding the country with dollars raised by more debt. The Fed maintains that it will turn off the liquidity spigot at the first sign of inflation, but the political reality is that they will keep rates too low too long for fear of us slipping back into a double-dip recession just when we are starting to emerge from the woods. Although we are likely 6 months away from seeing many tangible signs of inflation (although food prices have spiked recently), now is the time to take active steps to protect one’s purchasing power.

My recommendation is to add some exposure of precious metals to your portfolio, although longer term aggriculture and energy have terrific fundamentals. Of the precious metals, my top choice is silver (SLV) because it has lagged the performance of gold. Back in 2007 the price of gold to silver was a multiple of 50, but has now widened to a ratio of 72. Silver will serve as an inflation hedge and will get a further boost when industrial demand returns. I have allocated a portion of my portfolio to SLV and am anticipating holding it for at least five years.