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July 20, 2022, 12:11 p.m. EDT

Surprise! Inflation hedges like real estate, gold and TIPS ‘are not performing as expected’

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By Vivien Lou Chen

Inflation is running hot, hot, hot in the U.S. and practically everywhere else, too. Meanwhile, hedges which investors had counted on for protection — real estate, gold and Treasury inflation-protected securities— aren’t doing nearly as well as one may have thought they would. This chart from Jim Wiederhold, associate director of commodities and real assets for S&P Dow Jones Indices, a division of S&P Global, illustrates the point. In a blog post on Tuesday, he said the year-to-date performance for real estate, gold and TIPS is negative, though commodities have “recently been offering inflation protection amicably.”

Reasons vary for why those hedges have underperformed. In the case of TIPS, which see higher prices and coupon payments when inflation rises, “other factors matter too,” according to Juan de la Hoz of the CEF/ETF Income Laboratory newsletter on Seeking Alpha: Investors have been selling bonds “in anticipation of higher interest, and TIPs have not been spared,” he wrote in an online post in May. With regard to gold, Wells Fargo’s head of real asset strategy John LaForge put the blame this week on the surging U.S. dollar.

“So, what has been holding gold back? The U.S. dollar. The U.S. dollar spot index (DXY) /zigman2/quotes/210598269/delayed DXY -0.33% has risen a stellar 12.6% this year and sits at levels last seen in 2002. This is important because a strong U.S. dollar makes gold look cheap (performedpoorly) to U.S. investors,” said in a Tuesday note. “For those pricing gold in most any other currency, gold has become quite expensive.”Behind 2022’s outperformance of commodities is the enormous lift that the category gets from the energy sector, according to Wiederhold of S&P Dow Jones Indices. While gasoline prices /zigman2/quotes/210286597/delayed RB00 +1.03% grabbed headlines, Wiederhold said “gas oil, heating oil /zigman2/quotes/210062576/delayed HO00 +0.54% and natural gas /zigman2/quotes/210189548/delayed NG00 +2.10% were all up nearly 100% in 2022.” In addition, although a strong dollar usually acts as a headwind for commodities overall, that isn’t the case right now: Commodities moved first, while the dollar is responding more recently to an abrupt shift in global monetary policy aimed at cooling inflation, he wrote in his note on Tuesday.As of Wednesday morning, the S&P GSCI Gold index /zigman2/quotes/210598596/delayed XX:SPGSGC +0.32% was down by around 0.2%. The S&P United States REIT index was up about 0.6%, while the S&P U.S. TIPS index didn’t display performance figures for Wednesday.

Stocks were higher Wednesday, attempting to build on a large bounce the previous session. The S&P 500 /zigman2/quotes/210599714/realtime SPX -1.03% remains down nearly 17% year to date, while the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -1.11% has shed around 12% over the same stretch.

See: Energy and materials stocks face rough ride as commodity prices come off the boil, says economist

/zigman2/quotes/210598269/delayed
US : U.S.: ICE Futures U.S.
113.72
-0.38 -0.33%
Volume: 0.00
Sept. 27, 2022 1:15a
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/zigman2/quotes/210286597/delayed
US : U.S.: Nymex
$ 2.31
+0.02 +1.03%
Volume: 942.00
Sept. 27, 2022 1:15a
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/zigman2/quotes/210062576/delayed
US : U.S.: Nymex
$ 3.06
+0.02 +0.54%
Volume: 854.00
Sept. 27, 2022 1:05a
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/zigman2/quotes/210189548/delayed
US : U.S.: Nymex
$ 7.16
+0.15 +2.10%
Volume: 1,566
Sept. 27, 2022 1:14a
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/zigman2/quotes/210598596/delayed
XX : S&P GSCI
954.06
+3.09 +0.32%
Volume: 0.00
Sept. 27, 2022 1:15a
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/zigman2/quotes/210599714/realtime
US : S&P US
3,655.04
-38.19 -1.03%
Volume: 2.22B
Sept. 26, 2022 5:56p
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/zigman2/quotes/210598065/realtime
US : Dow Jones Global
29,260.81
-329.60 -1.11%
Volume: 320.97M
Sept. 26, 2022 5:56p
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