NEW YORK (
) -- Even though Tuesday's GDP revision was worse than expected, there are still signs that an accelerated economic recovery will emerge, and that has many investors betting that inflation will soon rear its head.
According to Merrill Lynch & Co.'s Treasury Master Index, Treasuries are expected to have their first down year in a decade, which is an indicator that investors are expecting prices to rise. This is the opposite of what we saw during the most recent financial meltdown when Treasuries gained an average of 14% and investors anticipated prices would decline.
What's more, Treasury yield curves have been widening to record levels. Most recently, the difference between two- and 10-year Treasury note yields jumped to 281.4 basis points, from 145 basis points at the beginning of the year. Additionally, the yield on the benchmark 10-year note reached its highest level since mid-August.
Another indication that that prices are set to rise comes from the most recent data on wholesale prices. The producer price index, or PPI, outpaced economists' expectations by jumping 1.8% in November, and many believe the consumer price index will follow.
Investors can shield their wealth from inflation with the following equities:
SPDR Gold Shares
, which has been attracting assets at record levels, due to fears of inflation and a weakening dollar. GLD was up 34% from its January low of $79.79 to close at $106.95 on Monday.
iShares Barclays TIPS Bond
, which adjusts its returns based on increases and decreases in the CPI. TIP is up 8% from a March low of $96.48 to close at $104.55 on Monday and boasts a yield of 3.38%.
Materials Select Sector SPDR
, which is relatively resistant to inflationary pressures. XLB is up 80% from a March low of $18.08 to close at $32.46 on Monday.
Although these ETFs offer protection against inflation, it is equally important to understand the inherent risks that are involved in them. To help mitigate these risks having an exit strategy is of importance. According to the latest data at
, the price points at which an uptrend in these ETFs may come to an end are: GLD at $105.03; TIP at $103.93; XLB at $31.16. Keep in mind that these price points fluctuate with market conditions and updated data can be found at www.SmartStops.net.
-- Written by Kevin Grewal in Laguna Niguel, Calif.
Kevin Grewal serves as the editorial director and research analyst at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Additionally, he serves as the editorial director at SmartStops.net where he focuses on mitigating risks and implementing exit strategies to preserve equity. Prior to this, Grewal was an analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds a bachelor's degree from the University of California along with a MBA from the California State University, Fullerton.