Leading gold authorities on inflation hedge battle
According to two world-renowned gold experts, the rising popularity of cryptocurrency is something they cannot help but recognize.
Bitcoin outperformed gold significantly year to date with the digital currency rising nearly 133%, and yellow metal falling about 4%.
The divergence begs the question about whether Bitcoin is preferred to gold for inflation hedges. But the strategist behind world’s biggest gold-backed Exchange-Traded Fund claims that bitcoin has the edge.
CNBC’s George Milling Stanley said that both assets can co-exist in the market. “They do totally different jobs.” “ETF Edge”On Monday
The SPDR Gold TrustOn Nov. 18, the largest ETF backed with physical gold (GLD), will begin its 17th anniversary in public markets. This is a decrease of almost 4.5% in 2021, but an increase of around 281% over its launch in 2004.
“The historical promise of gold to investors has always been twofold: one, that over the long term — and I stress this, over the long term — gold can improve your returns and it can also help to reduce your volatility,” Milling-Stanley said.
While gold has a track record of improving risk-adjusted returns over longer time periods — “the holy grail of any asset allocator” — digital coins carry more risk, increasing volatility and making returns subject to their often-drastic short-term swings, the strategist said.
He said that sustained inflation would likely bring gold back in favor.
“Gold can be a good saver of purchasing power in times of high inflation. I am referring to many months of inflation exceeding 5% per year. These types of inflation, as we have not seen since the 1970s, saw gold give an equivalent annual capital appreciation to around 16% per annum or a real return in excess of 11%,” he stated.
“Right now we have inflation about 5% for perhaps three or four month with everybody telling me it’s temporary, it’s going away, so I don’t at all surprise that gold isn’t responding to these inflation numbers yet.”
While Bitcoin and other digital currencies may have been siphoning money away from gold in some cases, GraniteShares CEO Will Rhind indicated that it was too early for us to determine if it could be due to their successful inflation hedge.
The GraniteShares Gold TrustETF Database reports that (BAR) ranks fifth in the number of gold ETFs on the markets by assets under administration. However, it is still down around 4%.
Rhind explained that “With bitcoin and the market capital of other cryptocurrencies they are attracted capital, absolutely,” Rhind added. I’m not sure if they are attracting capital from the gold market to the same extent, but it’s possible.
The reason people buy bitcoins and other cryptocurrencies is because they are highly speculative. “That’s an extremely risky scenario,” he stated. “It’s less defensive in my mind. People are more defensive when they buy gold. The inflation story is at the heart of it. It revolves around long-term capital preservation or buying power.
Gold pricesAfter the Labor Department’s report, Tuesday saw a close to two-month peak. producer price indexIn October, 8.6% was an increase in year-over-year. This is the highest annual rate for more than 10 consecutive years.