Inflation, the Well-Known Phenomenon!

Inflation is often a hidden, insidious tax that gradually drains purchasing power, making everything more expensive over time.

We notice it through rising prices, but in reality, it can also be observed as a decline in purchasing power—what you can buy today with €100 compared to what you could buy a few years ago.

When I first started exploring investments in 1998, my father told me that inflation is determined at a political level. At the time, I had no knowledge to argue against his statement.

I still remember the 1980s when interest rates were at 18%, and if you applied for a bank loan, they would grant it with an annual interest rate of 25%.

One event that shocked me was during a vacation in the former Yugoslavia. One day, I went to a local supermarket and bought a Coca-Cola for 1,000 dinars. The next day, the price had risen to 1,050 dinars, and since I only had 1,000 with me, I couldn’t buy it.

In 2022, due to reckless monetary printing and debt policies, commodity prices doubled in just a few months, starting with gas and oil. This led to an increase in transportation costs and, consequently, the cost of all raw materials.

Inflation in 2022 briefly reached 10%, before returning to more acceptable levels. However, prices remained significantly higher than in 2021, even in the following years.

At that point, I decided to revisit the U.S. inflation trends from the 1960s to the 1980s to better understand its dynamics and compare it to the inflation surge of 2022.


As you can see, inflation was not a one-time event, but rather occurred in three increasingly intense peaks following the initial surge, proving that it was difficult to tame, especially during the 1970s.

This raises a crucial question: Will inflation spikes repeat in the coming years, or are policymakers taking measures to prevent them?

Looking at Trump’s trade policies, which imposed tariffs on various countries, it seems likely that inflation in the U.S. will rise again.

Turning to Europe, we hope for wiser policies, but we find Ursula Von Der Leyen proposing to rearm Europe with €800 billion in debt, then €1 trillion, and now €1.2 trillion.

Rearming Europe means large amounts of metals, raw materials, and a significant workforce—all factors that fuel inflation. This raises the question: Are policymakers intentionally driving inflation higher for another cycle?

After all, if a country has €2.5 trillion in debt but produces €1.5 trillion in GDP annually, and inflation pushes GDP to €2 trillion in two years, the debt-to-GDP ratio improves without actually repaying anything.

If this continues for a decade, the debt becomes much more manageable. Was my father right after all?

Since European citizens can only protect themselves against inflation—unless they move to more forward-thinking countries like Switzerland—I conducted an analysis to determine which liquid financial instruments offer the best inflation protection.


The bond market is generally not effective against inflation for two reasons:
Government bonds historically yield less than inflation (for obvious reasons).
When inflation rises, governments must increase interest rates, which causes bond prices to fall.

If inflation rises again, the bond market is likely to experience another decline, following the pattern seen in 2022.


Equities behave somewhat differently. The general belief is that the stock market protects against inflation because companies raise prices, increasing their revenues.

While this is true, profit margins do not necessarily remain stable. As shown in the graph, equities lost value during the first two inflation spikes but rebounded strongly with the third.

When raw material costs rise, companies initially suffer, then increase prices, but margins remain tight. Eventually, margins recover, leading to higher stock prices.

If inflation rises again, the stock market could face another downturn, as seen in 2022.


Gold, the ultimate safe-haven asset, follows a different trajectory.

During the inflationary period of the 1970s, gold was initially pegged to the dollar under the Bretton Woods Agreement. However, in 1971, Nixon removed the gold standard, allowing gold to appreciate freely in response to inflation and rising demand.

This led to a massive price surge, peaking during the second inflation spike before correcting in the third.

Recently, gold has surpassed $3,000 per ounce, and as shown by the bold yellow line, its price trajectory closely mirrors past inflationary trends. Many institutional investors are accumulating gold, anticipating another surge in inflation.

And you? Do you hold gold in your portfolio? Do you recommend it to your clients?