According to Goldman Sachs analyst Jeff Currie, investors should not consider gold and cryptocurrencies as alternatives to each other in terms of hedging against inflation, but should note the similarities of cryptocurrencies. with copper.
June 2, 2021
Over the years, gold and cryptocurrencies have been seen as two effective hedges against inflation, with some crypto investors even praising bitcoin as an alternative to gold in the modern era.
RELATIONSHIP BETWEEN DONG AND BITCOIN
In a new interview with CNBC, Jeff Currie, head of global commodities research at Goldman Sachs, recommends that investors should not view cryptocurrencies as an alternative to gold in terms of hedging. inflationary. Instead, Mr. Currie said the new coin and bitcoin have similar characteristics.
The expert noted, copper and bitcoin both act as "risk-on" inflation hedges, while gold is inherently considered a safe-haven asset (or in other words a "risk-on" asset). -off").
Risk-on/Risk-off is a theory related to market sentiment that refers to investor behavior according to perceived levels of risk in financial markets.
Accordingly, when the perceived risk is low, investors tend to pour money into high-risk assets, this is called the risk-on phenomenon. Conversely, when perceived risk is high, investors will sell off high-risk financial products to move to safer assets, this is known as risk-off.
Mr. Currie emphasized:
There is good inflation and bad inflation. Good inflation is when demand is high and creates inflation. Bitcoin, copper or oil are the assets that hedge against inflation in this case.
The Goldman Sachs analyst further argued:
Meanwhile, gold is a hedging asset against bad inflation, when there is a sharp decline in supply, such as the current shortage of chips, commodities and raw materials.
Currently, inflation in some countries like the US is heating up in the context of the global economy recovering from the COVID-19 pandemic, central banks maintaining loose monetary policies and the demand for many commodities. oversupply.
In April this year, the core personal consumption expenditures (PCE) index, the favorite inflation gauge of the US Federal Reserve (Fed), increased by 3.1% year-on-year, high than expected by experts.
TWO CASE OF INFLATION AND THE POSITION OF GOODS IN GENERAL
In a May 31 report, Goldman Sachs suggested that commodities as a whole remain the best inflation hedge for investors looking for a haven against the risk of a financial market crash. .
In the report, Mr. Currie's commodities research team said that because stocks are priced in line with market expectations for future business profits and growth, they are a good hedge against " inflation is anticipated”.
However, once inflationary pressures are large enough to force central banks to factor in the possibility of rate hikes, equities are no longer an effective inflation hedge, the team argues.
The report states:
Industrial goods are spot assets that do not depend on future growth rates but on the level of demand relative to supply.
Goldman Sachs concludes:
Commodities are therefore hedging assets in the event of abnormal and short-term inflation. This type of inflation occurs when the total demand exceeds the supply capacity of the market in the late stages of the business cycle.