Gold and Crypto: Powerful Inflation Hedges to Consider Now

Every culture has its own particular boogeyman. In the folklore of Alpine countries, Krampus punishes children during the Christmas season who have misbehaved. He’s the dark doppelganger of kindly Saint Nicholas.

In Germany, the Butzemann (“he who makes a racket”) is a faceless goblin shrouded in a cloak. In Spain, the Hombre del Saco (“sack man”) kidnaps naughty children and carries them away in a sack. The list of the world’s monsters goes on.

On Wall Street, the boogeyman is inflation. And once again, this feared creature is rattling its cage. The latest U.S. inflation readings have come in hotter than expected, pushing up bond yields and weighing on stocks.

READ THIS STORY: Inflation: Down But Not Out

These concerns, coupled with the resilient economic recovery and worsening geopolitical turmoil, have bolstered the prices of inflation hedges.

Now’s an opportune time to expand your stake in these hedges, as an integral part of a properly balanced portfolio. Below are two choices to consider now: gold and cryptocurrency.

The golden road…

If you’re risk averse and want an easy and safe way to increase your exposure to the Midas Metal, consider the SPDR Gold Trust (GLD).

Launched in 2004, the SPDR Gold Trust was the first gold exchange-traded fund (ETF) available in the U.S. GLD seeks to replicate the performance, net of expenses, of the price of gold bullion. GLD is considered the benchmark for gold.

With net assets of $59 billion and an expense ratio of only 0.40%, the SPDR Gold Trust is the most popular bullion ETF and the most liquid physically backed gold offering available. The SPDR Gold Trust is backed by physical gold and mirrors the price movements of the precious metal.

Gold ETFs hold bullion as their only asset but trade just like regular stocks. They move directly in tandem with gold prices.

When gold prices are on the way up, the biggest profits will come from plays that tag along for the ride. Gold prices have been rising this year and they’re poised to pop even higher in coming months amid accelerating inflation and deepening conflict in the Middle East and Eastern Europe.

The following chart demonstrates why gold is a smart bet:

The above chart depicts the performance of gold (CFD USD/oz) and the S&P 500 over the past five years, ended April 12, 2024. (CFD: contracts for difference, such as the GLD ETF.)

As you can see, the “yellow metal” comes out on top, especially under conditions such as we’re currently experiencing.

Crypto, for growth and protection…

There’s another hedge you should consider: cryptocurrency. That’s right…crypto.

As traditional markets fluctuate in response to economic turbulence, the appeal of cryptocurrencies as an inflation hedge has surged. In recent years, digital currencies have attracted both seasoned investors and newcomers seeking refuge from the erosion of fiat currencies.

The concept of inflation hedging is rooted in the ability of an asset to preserve or increase its value over time, even in the face of rising prices. Historically, investors have turned to tangible assets such as gold to shield their wealth from the corrosive effects of inflation.

However, the advent of cryptocurrencies has introduced a new paradigm, offering a decentralized alternative immune to the whims of central banks and government policies.

One of the primary reasons why cryptocurrencies are considered an inflation hedge lies in their scarcity. Unlike traditional fiat currencies that can be endlessly printed by central authorities, most cryptocurrencies operate on fixed or deflationary supply mechanisms.

Bitcoin (BTC) the pioneer of the cryptocurrency space, has a maximum supply cap of 21 million coins, ensuring that its value can’t be diluted through arbitrary inflationary measures.

The decentralized nature of cryptocurrencies insulates them from political interference and manipulation. While governments may resort to quantitative easing or fiscal stimulus to spur economic growth, cryptocurrencies operate within a transparent and immutable framework governed by mathematical algorithms. This inherent resistance to external control enhances their appeal as a store of value during times of economic uncertainty.

The borderless nature of cryptocurrencies also contributes to their allure as an inflation hedge. In an interconnected world where capital flows freely across international borders, traditional investors face the risk of currency devaluation due to geopolitical instability or sovereign debt crises. Cryptocurrencies offer a viable alternative, enabling individuals to diversify their holdings beyond the confines of national currencies and geopolitical boundaries.

Moreover, the growing acceptance of cryptocurrencies as a legitimate asset class has bolstered their reputation as a hedge against inflation. Institutional investors, hedge funds, and corporations have increasingly allocated capital to digital assets, recognizing their potential to deliver superior risk-adjusted returns in inflationary environments.

This mainstream adoption not only validates the credibility of cryptocurrencies but also augments their liquidity and market depth.

Your guide to the right crypto choices…

Crypto is making ordinary investors rich. But you need to make your move now, because the fuse is lit on this market. And every day you wait is literally costing you thousands in profits.

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John Persinos is the editorial director of Investing Daily.

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