Bitcoin has thumped gold’s returns over the past 14 years, but the jury is still out on which is a better inflation hedge.
Both gold and bitcoin can help investors create wealth by acting as hedges against price inflation fuelled by central bank money printing, but shouldn’t be mistaken as similar asset classes, New York University finance professor David Yermack says.
Bitcoin is often labelled “digital gold” but professionals say the two asset classes serve different purposes.As a rule of thumb, gold’s value decreases as interest rates on risk-free assets such as cash and government bonds rise because gold, like bitcoin, pays no interest and therefore becomes less attractive to investors.
“This was demonstrated perfectly when the Fed started to hike rates in 2022, tech stocks got clobbered and bitcoin got slapped. So, I don’t see bitcoin as a competitor to gold.” But Yermack says these assumptions are based on historical price action, rather than any academic or mathematical fundamentals.
The strategist also advises against buying gold as a kneejerk reaction to headlines around geopolitical conflict such as in Israel. Reade adds he is confident gold’s defensive qualities for conservative investors focused on the long term will shine through, as central banks cut interest rates within 24 months.“The next big change in direction for interest rates will be a fall for a number of reasons,” he says. “The US could pull off a soft landing with unemployment a bit higher and inflation coming down to see rates fall.
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