Bank of America believes that commodities are an area that investors should focus on from now until 2030.
The strategist led by Jared Woodard of the bank pointed out in the latest report that structural inflation will rise, which means that the "commodity bull market has just begun".
For a long time, commodities such as oil and gold have been considered reliable inflation hedging tools, and if Woodard's prediction of a sharp rise in inflation becomes a reality, investor demand for these commodities will increase.
Woodard emphasized that due to globalization and technological trends, the inflation rate has remained around 2% for the past 20 years. But now the United States may soon return to the inflation trend before 2000, when inflation averaged around 5% per year.
The reversal of these forces means that inflation will structurally shift back to 5%, "analysts wrote. In 2023, the US CPI index rose by 3.4%, and data from July showed a year-on-year increase of 2.9%.
The report states that although it may be difficult to imagine the trend of technological disruption continuously suppressing inflation slowing down, the trend of globalization has strengthened in recent years.
From tariffs imposed by the United States on a range of foreign products such as electric vehicles and steel, to efforts to revive the semiconductor industry, these policies have hindered price declines, especially since the cost of supporting local jobs in the United States is much higher than labor costs in emerging markets.
Bank of America stated that "debt, deficit, demographic structure, anti globalization, artificial intelligence, and net zero policies will all lead to inflation," and the annualized return rate of commodities may reach 11%.
These potential returns mean that commodities are a better asset class in investors' 60/40 investment portfolios.
Woodard emphasized that even with declining inflation and a dovish attitude from the Federal Reserve, the annualized return rate of commodity indices has reached 10% -14%, while the popular Bloomberg Composite Bond Index has an annualized return rate of only 6%.
He specifically mentioned that gold has always been a particularly powerful force driving the strong performance of the commodity industry. So far this year, gold prices have surged by about 21%, reaching a historic high. Since inflation began to surge in early 2022, gold prices have risen by 35%.