Bank of America strategist Jared Woodard stated in his latest report that the U.S. will face rising structural inflation in the future, indicating that the "commodities bull market is just beginning."
For a long time, commodities such as oil and gold have been considered reliable tools to combat inflation. Should Woodard's expectations of sharply rising inflation come true, investment demand for these commodities will significantly increase.
Woodard particularly noted that globalization and technological advancements have kept inflation rates at around 2% over the past 20 years. However, he believes that the U.S. may soon return to the inflation trends seen before 2000, when the annual average inflation rate was about 5%.
"The reversal of these trends will lead to a structural rise in inflation rates to 5%," analysts wrote in the report. Current data shows that the U.S. CPI index rose 3.4% in 2023, with a year-over-year increase of 2.9% in July.
The report further pointed out that while the phenomenon of technological change suppressing inflation seems difficult to alter, the deglobalization trend has been strengthening in recent years. For example, U.S. tariffs on foreign products such as electric vehicles and steel, along with policies to revitalize the semiconductor industry, have hindered price reductions. Notably, creating jobs domestically in the U.S. is more costly compared to labor costs in emerging markets.
Bank of America stated that "factors such as debt, fiscal deficits, demographic changes, deglobalization, artificial intelligence, and net-zero policies will all drive inflation up," suggesting that the annualized return rate of commodities could reach 11%.
This means that commodities could become a more attractive asset class within the traditional 60/40 investment portfolio. Even in a context of declining inflation and dovish policies from the Federal Reserve, the annualized return rate of the commodities index could still reach 10%-14%, far exceeding the Bloomberg Composite Bond Index's 6%.
Woodard particularly emphasized that gold has always been one of the key drivers of commodity performance. This year alone, gold prices have risen by about 21%, hitting a historical high. Since inflation began to climb in early 2022, gold prices have cumulatively increased by 35%.
