Investment colored gemstones: How protection against inflation works
Stock markets have risen since November 2023 on hopes that there will be around six interest rate cuts in both the US and Europe in 2024. It was all a perfect world: falling inflation rates, falling interest rates, but still a growing economy and rising corporate profits. The result was almost an ideal scenario for the financial markets: stock markets rise, bonds rise (yields fall), credit costs for companies become cheaper and the economy grows. But what happens to inflation? The financial experts at the German Gemstone House explain how you can protect yourself from this.
Mixed signals, potential opportunities. This is what awaits us!
Since the beginning of 2024, skepticism has arisen about this scenario, because inflation rates, which had fallen so nicely from over 10% towards 3%, suddenly stopped falling and have even risen slightly again in some cases. The bond markets recognized this immediately and gave back two-thirds of the autumn price increase by April. The euro has also largely given up its gains against the US dollar (from 1.0450 to over 1.11) and is currently trading at just over 1.07. Why is that important? Most commodities in the world are traded in US dollars. If this falls in value, raw materials become cheaper and can rise in price and vice versa. Therefore, a rising US dollar is often a sign of increasing uncertainty and a flight to safety. Many investors ask themselves how they can diversify their assets to ensure effective protection against inflation.
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While the bond and currency markets became increasingly skeptical about further falling inflation rates and thus the interest rate cut fantasy, the stock markets were unimpressed and simply continued to rise. One could say that the bull market feeds the bull market. But now inflation, especially in the USA, is so persistent that even the stock markets should have doubts about interest rate cuts. Currently, the bond markets are doing the job of the US Federal Reserve and causing yields to rise. While 10-year US yields were still at around 3.80% at the end of the year, they have now risen to over 4.50%. In general, the question remains: why should a US Federal Reserve lower interest rates in such an environment? While the economy is growing robustly, unemployment is low and the stock markets are at boom levels, a reduction in interest rates would be like pouring oil on the fire and would be the complete opposite of fighting inflation.
So while interest rate cuts in the US are becoming increasingly unlikely (even if there may be a symbolic cut), the situation in Europe is somewhat different. Although the labor markets here are strong and wage increases are high, the economy is much weaker than in the USA. From this perspective, an interest rate cut by the ECB would make much more sense and thus be more likely than in America. What speaks against this is that the ECB has never in its history (with one exception in 2011) cut interest rates before the US Fed.
All in all, the financial markets could become somewhat more turbulent in the coming months, as has been the case over the past six months. By the way, geopolitical risks have so far been completely ignored by the stock markets. Rising commodity prices (gold, silver, oil, copper,…) can be harbingers.
Protection against inflation through asset diversification: alternative tangible assets
Protection against inflation is typically provided by well-known tangible assets, but in addition to severe restrictions on gold trading, it is also impossible to predict how safe this investment will be in the future in other areas such as real estate investments. Last but not least, the investment colored gemstone offers protection against inflation, because if markets, society and politics develop as currently foreseeable, the ruby will become the “better gold”. On the subject of diversifying assets, the German Gemstone House offers interesting insights at the macroeconomic level. With a high level of specialization in international financial market developments, the operators of the German Gemstone House are absolute experts who enable their customers to secure assets for generations through investment colored gemstones.
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