Every culture has its own particular boogeyman. In the folklore of Alpine countries, Krampus punishes children during the Christmas season who have misbehaved. He’s the dark doppelganger of kindly Saint Nicholas.

In Germany, the Butzemann (“he who makes a racket”) is a faceless goblin shrouded in a cloak. In Spain, the Hombre del Saco (“sack man”) kidnaps naughty children and carries them away in a sack. The list of the world’s monsters goes on.

On Wall Street, the boogeyman is inflation. And he has escaped from his cage.

Read This Story: Straight Talk About Inflation

On Thursday, the U.S. Bureau of Labor Statistics reported that inflation, as measured by the consumer price index (CPI) for all urban consumers in the U.S., pushed higher in January, rising 7.5% from a year earlier, the largest 12-month increase since February 1982. That number is hotter than the consensus estimate of 7.3% (see chart).

Source: Bloomberg

The Federal Reserve may be compelled to tighten faster and sooner than expected. The first of the central bank’s interest rate hikes is due in March.

Since the outbreak of the coronavirus pandemic, the Fed has pumped billions upon billions of dollars into the economy to ensure the solvency of the U.S. financial system. Between the glut of dollars and the astronomically high national debt, the national currency will inevitably lose ground as inflation expectations rise.

Hard assets for hard choices…

These concerns, coupled with the strong global economic recovery (especially in Asian economies) have bolstered the prices of hard assets.

Hard assets are commodities such as energy, precious metals (e.g., gold and silver), raw materials (e.g., copper and iron ore), agriculture, and forest products. They are tangible assets with intrinsic value.

Now is an excellent time to expand your stake in hard assets, as an integral part of a properly balanced portfolio. Inflation is posing hard choices for investors. Hard assets are part of the answer.

Watch This Video: Inflation Hedges Are Gaining in Popularity

Although a diversified investment strategy reduces the risk of overexposure to a particular industry or sector, be aware that you lose some of that advantage if your commodities positions account for more than 5% to 10% of your holdings.

Extremely sensitive to rising prices, hard assets make excellent inflation hedges. Here are two funds to consider: one a play on agriculture, the other on gold.

A hungry world…

Several studies show that population growth is outpacing food production. You can leverage the global food shortage and simultaneously hedge your portfolio against rising inflation, by placing the Invesco DB Agriculture Fund (DBA) in your portfolio’s hedges sleeve.

A pure play on basic food products, DBA is an exchange-traded fund (ETF) that holds futures contracts on such agricultural commodities as corn, wheat, soybeans, cocoa, coffee, sugar, and cotton. These contracts are rolled over before expiration to maintain exposure.

Since the coronavirus outbreak last year, the cost of all of those commodities has risen, thanks to supply chain disruptions, severe weather events such as droughts and floods, and political disturbances.

With a net asset value of $1 billion, DBA is considered a benchmark for the agricultural sector and its expense ratio is a reasonable 0.85%. Commodities in general represent fast-moving investments, and as such deliver the potential for market-beating gains.

The golden road…

If you’re risk averse and want an easy and safe way to increase your exposure to the Midas Metal, consider the SPDR Gold Trust (GLD).

Launched in 2004, the SPDR Gold Trust was the first gold ETF available in the U.S. GLD seeks to replicate the performance, net of expenses, of the price of gold bullion. GLD is considered the benchmark for the yellow metal.

With net assets of $57 billion and an expense ratio of only 0.40%, the SPDR Gold Trust is the most popular bullion ETF and the most liquid physically backed gold offering available. The SPDR Gold Trust is backed by physical gold and mirrors the price movements of the precious metal.

Gold ETFs hold bullion as their only asset but trade just like regular stocks. They move directly in tandem with gold prices.

When gold prices are on the way up, the biggest profits will come from plays that tag along for the ride. Gold prices have been surprisingly flat this year, which tells me they’re poised to pop in coming months amid accelerating inflation.

If you’re willing to shoulder more risk than an ETF, our team has pinpointed a small-cap gold mining stock that’s on the cusp of exponential gains. For details on this under-the-radar gold play, click here.

John Persinos is the editorial director of Investing Daily.

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