More on financial repression

One commenter on today's daily commentary mentioned financialization as a reason we are seeing commodity prices through the roof. This makes a lot of sense since commodities are now an alternative asset class in the financial supermarket for investors and speculators alike. But it is also clear that funds have moved into alternative investments as yields have come down because the opportunity cost of holding these assets has diminished as fixed income assets yield next to nothing.

Gold has done well for just this reason. It is not that gold is an inflation hedge per se but rather it is a hedge against low and negative real rates. When real interest rates are low, the opportunity cost for holding gold is diminished and gold does well. When real yields are high, gold does not do well. Th...

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