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January 18, 2005 at 07:00 PM
Jan. 12, 2005 — With the Federal Reserve expected to continue tightening interest rates, where should investors turn?
Since interest rate hikes generally signal excess demand, gold, precious metals, and Treasury Inflation Protected Securities (TIPS) are likely to hold up better, said John Krey, senior investment officer in Standard & Poor’s Portfolio Advisors.
Gold and other precious metals can offer stability with a falling dollar and continued geopolitical instability. Despite the recent sell-off, natural resource investments, including copper and platinum, also are likely to hold up due to firm commodity prices that stem from still healthy worldwide economic growth.
In addition to TIPS, investors should hold some cash, Krey said. Rising rates means better returns for savings and money-market accounts. At present, Standard & Poor’s Investment Policy Committee (IPC) recommends a 15% cash stake in its recommended asset allocation.
Overall, the current interest rate environment offers few promising investments since “it’s hard to get clarity about the current cycle,” said Krey. The Fed usually raises rates when inflation looms, and as the economic recovery matures. Compared to previous periods of rising rates, high inflation currently appears less imminent.
