So far in 2023, there has been plenty of economic turmoil. From inflation to layoffs to bank failures, many Americans are on edge.
An early-year stock market rally has faded while gold and Bitcoin prices have surged, as many investors seek a safe haven. But of the two, which is the better hedge against inflation?
While the experts we consulted have well-thought-out views on the subject, investors should never make big financial decisions without doing their own research and consulting with a trusted and objective financial adviser.
Richard Gardner, CEO at Modulus, says gold has a historic record and it has been used as a store of value for thousands of years. That’s his choice.
“It is, reliably, a hedge against inflation because it is a physical commodity that is scarce, meaning that it is difficult to manipulate,” Gardner told ConsumerAffairs. “Because the supply of gold is limited, it has historically held up quite well against fiat currency, which can be printed at will. It is a favorite investment for risk-averse investors.”
Gold is approaching a record high in price, trading this week at around $2,020 an ounce. Gardner said he thinks gold is the better hedge because there isn’t enough data on how cryptocurrencies hold up over time.
Bitcoin, on the other hand...
Marius Grigoras, CEO at BHero, takes the opposite view. While he acknowledges that gold has served as a trusted store of value in the past, he thinks Bitcoin has emerged as a more efficient and accessible alternative.
“Bitcoin offers anonymity, security, and accessibility without physical constraints,” he told us. “Its scarcity, fixed supply, and immunity to government manipulation position it as an attractive deflationary asset. Furthermore, Bitcoin's potential for appreciation, as demonstrated by its remarkable growth over the past decade, outpaces gold's returns, making it an enticing option for wealth protection.”
However, Bitcoin has been more volatile than gold. After soaring to a price above $60,000 the cryptocurrency plunged to below $20,000. In the wake of recent bank failures it has enjoyed a rally, taking the price back to $30,000.
Doesn't like either one
Jack Prenter, CEO of DollarWise, isn’t a fan of either gold or Bitcoin as a hedge against inflation.
“For an asset to be a good hedge against inflation you would want to see decades of data that show strong protection of purchasing power over multiple market cycles and in different rate environments, and we don't have that data for Bitcoin because it's so new,” he told us.
“Gold is often touted as a strong inflation hedge, but the data shows that in the short and medium-term gold doesn't act as a good hedge.”
Prenter notes that from 1980 to 1984, the price of gold fell by about 10% while annual inflation ran at 6.5%. He maintains that over the last 50 years, gold has had a weak correlation to inflation.
“Only when you look at a timeline of a century or longer is gold a reasonable hedge against inflation,” Prenter said.