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Gold and cryptocurrencies are often lumped together. Inflation resistant investmentbut neither asset has fared well amid 2022’s inflation rally as prices rise at their fastest pace in decades.
Bitcoin, the world’s most popular digital coin, Decrease by nearly 71% From an all-time high of $65,000 in November as of September 23rd.and gold prices fell close to 20% As of Friday, from a recent March peak.
Cryptocurrencies are often called “”.digital goldBecause, like gold, it is a speculative investment that can theoretically be used as a currency.
Moreover, the supply of cryptocurrencies such as gold and bitcoin is much more limited than that of the US dollar. easy to increase by the Federal Reserve.In theory, such scarcity should make these assets more resistant to rising inflation.
But that wasn’t the case as prices were rising at their fastest pace in decades.
cryptocurrency price hit Earlier this year, after the Federal Reserve began raising interest rates to combat inflation. Bitcoin price has fallen to almost a third of its peak early in the pandemic, just over $18,000 As of September 23rd.
David Haas, Certified Financial Planner (CFP) at Cereus Financial Advisors, said: “We believe the rise of cryptocurrencies prior to this year was due to very low interest rates making risky assets attractive.
People can borrow almost interest-free and invest in cryptocurrencies and other assets. When interest rates rise, this liquidity disappears and demand suddenly increases. [these] assets disappear.
Haas said the value of these assets could stabilize and improve in the second half of the recession when the Fed cuts or stops raising interest rates.
Despite gold’s long history as a scarce commodity, the price of gold has fallen to $1,645 as of September 23rd. well below the March peak of $2,069.
And historically, gold has Mixed track record as an anti-inflation measure.
Gold appears to protect purchasing power for long periods of time, say over 100 years, but it offers little protection against inflation in the short term, said Kevin Lam, CFP and founder of Foundry Financial. say.
One of the big drivers of gold’s performance is the strength of the US dollar. Highest score in 20 years this week. With economic slowdowns in China and Europe, investors are flocking to the dollar, which is seen as a safe haven during times of uncertainty for the global economy.However, investing in gold tends not to work well when the dollar is strong.
Asked why gold is gaining popularity as an inflation hedge, Lamb says recent biases may be a factor.
Between 1972 and 1980, gold $38 to over $600 per ounceAnyone who lived through that period in history will forever be convinced that gold is the ultimate hedge against inflation.
The price of gold at that time was the end of the gold standard In the United States, he says. From then on Gold has proven to be an unreliable hedge against inflation.
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