Gold Rally Puts TIPS in Focus for Inflation Hedge

If he is right, the better long-term trade is not simply owning the shiny asset that has already soared. It is owning the security designed to adjust with inflation. Caldwell’s preferred approach is to go long TIPS and short nominal Treasuries, a bet on breakevens widening if inflation runs hotter than the Fed’s target. In plain English, that is a more direct hedge against the risk investors actually fear: the value of fixed income being eroded by inflation.

That distinction matters for portfolios. Gold can still work as a fear trade, but it does not generate income, and after such a powerful rally it may be vulnerable to sharp swings around the Federal Reserve’s Sept. 15-16 meeting. Treasury yields have also moved higher, with the 10-year note recently near 4.95%, reflecting firmer growth, sticky core inflation and heavy debt issuance. In that environment, TIPS give investors a way to express an inflation view without needing gold to keep levitating.

The market backdrop shows why the debate is so relevant. Gold’s exchange-traded fund proxy, SPDR Gold MiniShares Trust, is only modestly ahead this year, while broad stock indexes such as the S&P 500 and Nasdaq Composite have posted stronger gains. Meanwhile, the iShares 20+ Year Treasury Bond ETF, TLT, has been sliding, with recent closes around $80.87 and a 50-day moving average above the price, a sign long bonds remain under pressure as investors demand more yield. Adalytica’s trade signals also show extreme greed in Treasury bonds and extreme fear in the CPI gauge, underscoring how divided investors remain about the inflation outlook.

Caldwell’s bigger argument is that the U.S. fiscal story is about bond supply, not an imminent debt crisis. The Congressional Budget Office still projects federal debt at 175% of GDP by 2056, but that path has not changed much from early 2024. For investors, that means the question is less whether the government can borrow and more whether inflation slowly eats away at the real value of the debt over time. TIPS are built for that scenario; gold is only a blunt substitute.

Of course, gold can still shine if real rates fall, geopolitical stress deepens or central banks keep buying. But after a multiyear advance, long-term investors should be asking whether they want to chase what has already worked or own the instrument most directly linked to inflation. For diversified portfolios, the answer may be to treat gold as a holding, not a thesis, and keep TIPS on the watchlist as the more disciplined hedge.