Despite accelerating inflation, gold is one of the top worst performing asset classes in 2021 as the luster of the precious metal has waned alongside what some see as its digital equivalent, bitcoin.
Often touted as an inflation hedge, the precious metal has fallen 5 percent this year, even as investors seek protection as consumer prices rise around the world. In contrast, Bitcoin has seen a large, albeit volatile, rally in 2021, with a 65 percent appreciation over the year to date.
Francisco Blanch, strategist at Bank of America, said the Federal Reserve’s withdrawal from the economic crisis and higher bond yields in the US had created “huge headwinds” for gold. A stronger dollar, which makes the metal more expensive for international investors, also weighed on its performance, he said.
“Some currents that may have flowed into gold in the past may have flowed into crypto assets,” added Blanch. The allocation of digital assets by institutional investors has increased “across the board” over the past year and a half, he said.
Bitcoin enthusiasts see what they call “digital gold” as a bulwark against inflation and point out its limited supply. However, cryptocurrencies like Bitcoin and Ethereum looked more like “risk assets” than ports, said Blanch, who described them as very volatile and increasingly “correlated with stocks and risk” due to their increasing use in some investor portfolios.
Bitcoin’s risk-adjusted returns, which make up its volatility, show much lower gains of 0.9 percent, lower than most other asset classes, according to calculations by Goldman Sachs. Its price fell $ 10,000 in an hour in early December.
Nikolaos Panigirtzoglou, cross-market analyst at JPMorgan, said that Bitcoin’s high volatility is “not incompatible” with a store of value thesis that “has more to do with the belief that assets like Bitcoin or gold will retain their value if something is systemic” happens or the financial system gets into a crisis ”.
Elsewhere, US energy stocks and oil prices performed strongly as the year saw the economy reopen. “Monetary and tax assistance related to the introduction of vaccinations” increased the mobility of people and goods, which fueled energy demand, said Gregory Perdon, co-chief investment officer at Arbuthnot Latham.
Although the advent of the Omicron coronavirus variant casts doubt on the forecasts, the analysts remain optimistic. “We’re much more excited about cyclical commodities [than gold] because we think the business cycle will continue into next year, ”said Blanch.
Real estate stocks also benefited from the reopening, with the S&P 500 sector adding 41 percent on a total return basis. Real estate investment trusts have historically beaten public stocks when inflation and growth are either above average or above 3 percent, according to JPMorgan.
Source: Crypto News Austria