Calgary, Canada, September 21, 2011 --(PR.com
)-- Agcapita research show that the Saskatchewan farmland/gold price ratio is significantly below its long-term average – and in fact is almost at the lows. If the ratio were to reach a similar peak to the last inflation period of the 1970’s of around 0.8 times – Saskatchewan farmland prices would have to almost triple from current levels assuming gold is properly pricing inflation.
It is interesting to note that both gold and farmland are excellent long-term inflation hedges with similar correlations to inflation. However, gold tends to be a leading inflation indicator while farmland tends to be a coincident/lagging inflation indicator. Assuming this relationship continues to hold perhaps this may represent an avenue for investors to make the “inflation trade” twice - the first time in gold then once again by rotating into farmland.
Stephen Johnston, partner at Agcapita, commented “Inflation was always a key driver of our investment premise when we launched our Canadian farmland fund in 2007. Farmland returns have historically shown a high positive correlation to inflation which simply means that farmland is a good inflation hedge.” He further added, “Keynesian deficit and money printing economic policies are now being pursued globally on a scale without precedent. If history is a guide, printing modest amounts of money creates modest amounts of inflation and printing large amounts of money creates large amounts of inflation. Central banks have an almost unbroken track record of being able to devalue their currencies and create inflation. We believe that this episode will be no different.”