As inflation continues to rise, it is becoming increasingly evident that precious metals such as gold are a better hedge against inflation in comparison to cryptocurrencies. The price of gold is up almost 5%, going at about $1,900 per ounce. Meanwhile, the price of Bitcoin has dropped by more than 15% this year, with other cryptocurrencies such as dogecoin, solana and ethereum also declining sharply.
In a recently released report, Swissquote analyst Ipek Ozkardeskaya stated that cryptocurrencies traded parallel to risk assets, instead of as safe havens, noting that cryptocurrencies were more of crypto-proxies for Nasdaq.
Crypto prices have continued to drop, despite news that Fidelity, an investment giant, would enable its customers to hold Bitcoin in their 401k accounts. Even news of Twitter’s acquisition by Elon Musk wasn’t enough to lift prices of cryptocurrencies. Currently, Bitcoin is trading below $40,000.
Experts have also highlighted that in comparison to digital assets, gold is still an advantageous asset. Increasing concerns of inflation may also cause an economic slowdown, which will boost gold significantly.
World Gold Council’s senior markets analyst Louise Street stated that gold had, historically speaking, been a strong performer in stagflationary environments, and with geopolitical tensions showing minimal signs of resolution and stagflation risks increasing, the metal was expected to perform well. In stagflationary environments, commodities often retreat while equities suffer.
In a separate report, Wells Fargo Investment Institute analysts also stated that in comparison to stocks, Bitcoin and other assets, gold was universally recognized, physically held and had one-fourth of the volatility. The analysts forecast that in 2022, the price of gold may reach $2,100 per ounce.
Worries of inflation and hikes in interest rates aren’t the only things boosting gold. In a report released last month by Frost Investment Advisors, the firm’s chief investment officer Mace McCain stated that the use of gold as a safe haven asset had increased because of concerns about the invasion of Ukraine by Russia.
McCain explained that many investors turned to gold as events escalated in Ukraine, noting that Bitcoin was still trying to find its niche between a digitized hard currency and a speculative technology asset.
During this volatile time, the dollar has also emerged as a better investment than cryptocurrencies such as Bitcoin. Data from the U.S. Dollar index shows that this currency is up by more than 5% this year.
All this goes to show that during times of crisis, most investors still see government-backed currencies and gold as better hedges against inflation in comparison to Bitcoin. This safe-haven appeal of gold is likely to boost the stocks of gold extraction companies such as Newmont Corporation (NYSE: NEM) (TSX: NGT) as the price of gold rises amid the unending conflict in Ukraine.
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