The Best Inflation Hedge – Farmland Or Gold?

The common consensus among the Bank of England and economists is that the UK is heading for a period of extended inflation up to 2012/2013, and savvy investors are looking for alternative assets that are proved to grow in value quicker than inflation rises, effectively hedging inflation as part of their overall investment strategy.

These inflation investments should be designed to provide income and preserve capital at a time when short term market visibility is at an all time low, and quantitative easing programmes combined with low interest rates start to squeeze the value out of cash as inflation rises.

Historically investors looking for an inflation hedge have turned to Gold, seeing the precious metal as a safe investment that will hold its value, even in uncertain economic times. The value of gold is a market led by supply and demand, there is only a finite amount of gold on the market, and as demand rises, so too does the price per ounce.

The problem with gold as an investment is that it is essentially a useless commodity and is used mostly for the purposes of storing cash as an asset, and more and more investors are now making farmland investments as this asset exhibits the same characteristics as precious metals, yet will always remain in demand from a growing population demanding more food, ensuring that farmland investment is supported by rock solid fundamentals and landowners have in their possession an asset that will always command a price regardless of the happenings within financial markets.

Farmland is an almost perfect inflation hedge investment, as agricultural land values have continued to rise for the last ten years. There has in fact not been a single seven year period that farmland values in the UK have fallen since record began, and as the demand for food is rising at the fastest pace in history, the next seven years is extremely unlikely to be the first time that happens.

As agricultural land also provides a stable consistent income in the form of a rental yield when leasing the land to a commercial farmer, this asset class also goes some way to replacing the income lost due to low interest rates.

In short, agricultural land provide investors with a near perfect inflation hedge, stable income, and remain very liquid as only 0.1% of farmland changes hands in the UK each year, making good quality land hard to find, further limiting supply and supporting future values. Generally speaking, good quality farmland will sell within 90 days depending on location and grade etc.

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