Investors should be prepared for inflation, but gold may not provide the right protection, a JPMorgan chief strategist says

Screen Shot 2020 08 14 at 12.19.45 PMBloomberg TV

  • David Kelly of JPMorgan Asset Management told Bloomberg that investors should “take inflation seriously.” 
  • But the chief global strategist doesn’t believe buying gold is the best strategy to hedge against this looming inflation.
  • Instead, investors should consider real estate, commodities, real assets, and value stocks.

David Kelly, JPMorgan Asset Management chief global strategist, told Bloomberg on Friday that investors “should take inflation seriously” given the levels of debt that have built up in the US. 

 He emphasized the US is facing enormous amounts of debt, and said “you can finance that if interest rates are very low, but if inflation begins to come up and long-term interest rates begin to go up, that’s going to put real pressure on the federal budget. So I think there’s a real issue there and we should take inflation seriously.” 

 However, Kelly cautioned investors looking to protect themselves from inflation away from buying gold. “Gold has changed its stripes over the years,” he said. “It used to be great inflation protection but then it rallied a lot in a very deflationary environment, so I’m not sure how much inflation protection it gives you,” the strategist added.

The precious metal faced its biggest-one day decline in seven years on Tuesday, falling below $2,000. It’s still up 27.5% year-to-date.

Kelly recommended that instead of gold, investors consider residential real estate. He also suggested real assets and commodities. “Commodities will help because if you have some inflation in the US you’ll probably have a falling dollar. A falling dollar will push up commodity prices,” Kelly said. 

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The strategist added investors may want to own “value stocks more than growth stocks.” He explained: “Value stocks are about the here and now, growth stocks are about earnings and the hereafter. When you’ve got rising interest rates that should ding growth stocks more than value stocks, so I’d rather be a little overweight value as I went into an inflationary environment.”

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