Despite rising inflation, gold is among the worst-performing major asset classes in 2021, as the precious metal’s luster has waned in comparison to bitcoin, which some regard as its digital equivalent.
Even with investors looking for security as consumer prices increase around the world, the precious metal, which is typically praised as an inflation hedge, has plummeted 5% this year. Bitcoin, on the other hand, has experienced a significant, albeit turbulent, surge in 2021, with a year-to-date gain of 65 percent.
The Federal Reserve’s pullback from crisis-era stimulus measures, as well as increasing bond yields in the US, have created “huge headwinds” for gold, according to Francisco Blanch, a strategist at Bank of America. He added that a higher dollar has hurt the metal’s performance by making it more expensive to international investors.
Bitcoin supporters perceive the cryptocurrency, which they refer to as “digital gold,” as a hedge against inflation due to its limited quantity. Cryptocurrencies like bitcoin and ethereum, on the other hand, are more akin to “risk assets” than havens, according to Blanch, who described them as extremely volatile and increasingly “correlated to equities and risk” as their use in some investor portfolios grows.
Bitcoin’s risk-adjusted returns, which take volatility into account, are substantially lower. According to Goldman Sachs assessments, the digital asset’s Sharpe ratio was 0.9, which was lower than most other asset classes. Its value plummeted by $10,000 in less than an hour in early December.
Although the Omicron coronavirus variant’s appearance has cast doubt on forecasts, analysts remain optimistic. “We’re much more enthusiastic about cyclical commodities [than gold] because we believe the economic cycle will continue into next year,” Blanch added.