By Liam Gibson | Wealth of Geeks
Gold and Bitcoin both enjoyed a sustained dual price surge this year. Bitcoin reached historical highs in March, surpassing $73,000, while gold peaked at more than $2,400 per ounce in May.
As economists debate the likelihood of persistent inflation and higher-for-longer interest rates, two alternative assets have captured the attention of financial professionals and investors alike: Bitcoin and gold.
Although gold has historically been considered the ultimate safe-haven metal and Bitcoin is commonly viewed as one of the riskiest speculative investments, these alternative assets are frequently compared together as the ultimate “anti-fragile” assets in a portfolio. Both gold and bitcoin may be “mined,” yet their real-world use cases are limited, except among investors seeking shelter from macroeconomic storms.
Why are investors flocking to Bitcoin and gold this year more than ever? Are they created equal as inflation hedges? Financial experts give their take on which asset class may suit the majority of their clients.
Uncertain World
The second half of 2024 could bring more volatility. More than 50 countries, including the United States, will hold elections this year, raising the political risk of populist anti-market regimes, civil strife, coups, or hung parliaments. Meanwhile, major armed conflicts continue in Europe and the Middle East, and mounting tensions in other regions could rattle markets, too.
The Goldman Sachs Global Institute notes geopolitical risk and the U.S. presidential election are the two top market risks this year for many investors. Over a longer time horizon, many worry about the system’s fundamentals.
“We have clients who share concerns about U.S. dollar stability and the global economic order,” says Stephan Shipe, Ph.D. and Lead Advisor at Scholar Financial Advising.
“These concerns drive interest in alternative assets like gold and Bitcoin or high-quality dividend-paying companies. These assets serve as hedges in their portfolios against geopolitical, economic, and cash flow risks.”
Financial advisors urge caution when trying to time the market for dramatic swings around world events, such as the presidential election cycle, an outbreak of global conflict, or other significant events.
“We encourage our clients to focus on building resilient portfolios rather than making speculative bets based on geopolitical predictions,” says Jorey Bernstein, CEO of Bernstein Investment Consultants.
Good as Gold
Historically, investors turned to gold as a safe haven amid volatility and high inflation. In recent years, central banks bought up bullion as trust in the greenback wanes. U.S. investors increasingly purchase gold bars, even at popular retail chains like Costco.
“I’m a fan (and owner) of physical gold, not as an investment per se but as an alternative and stable currency,” says Christine Luken, Wealthy Woman Book Club founder. “Gold prices rise during inflationary periods historically. Physical gold is a globally recognized currency that humans have used for over 5,000 years.”
True Scarcity
Currency used to be backed by solid investments. While the alternative, fiat currency, has been used for centuries, it became the national — and international — standard since President Nixon took the U.S. off the gold standard in 1971. Now central banks have a tendency to exercise certain strategies to “help” the economy out. That often appears as printing additional currency. They also buy securities to reduce inflation and inject cash into the system, an act known as “quantitative easing.”
Hedging against inflation requires a rare asset markedly scarcer than fiat currency. Both gold and Bitcoin are scarce, yet some financial planners view Bitcoin’s supply-side restraints as superior.
“Bitcoin is our recommended choice going forward,” says Bryan Courchesne, CFO and CEO of Digital Asset Investment Management. “It has a fixed supply schedule that creates a built-in scarcity with which gold cannot compete. Most people invest in gold and/or precious metals as a safe haven from inflation and future economic and geopolitical uncertainty. But the fact that these hard assets have undiscovered deposits all over the world shows that their very own inflation rate is uncertain. This is not the case with bitcoin, which is, in fact, the hardest asset you can invest in. Bitcoin has a fixed supply of only 21 million units.”
Courchesne also sees cryptocurrencies as more future-proof than gold.
“The world is becoming increasingly digitized,” says Courchesne. “Bitcoin embraces this. It doesn’t have the storage costs, portability issues, or divisibility problems that gold does.”
Indeed, finance grows progressively less physical. As of last year, most Americans reported using digital wallets more than physical cash, according to Forbes.
Yet Luken points out that this same advantage is Bitcoin’s Achilles’ heel.
“What concerns me about Bitcoin is that you can’t access it without electricity, a smartphone, or a computer. If the electrical grid goes down, your Bitcoin is worthless until the electricity returns.”
Other Pathways
Of course, other asset classes can protect against market volatility.
“Beyond Bitcoin and gold, we also recommend considering other inflation hedges such as Treasury Inflation-Protected Securities (TIPS), real estate investment trusts (REITs), and certain commodity-based ETFs [Exchange Traded Funds],” says Bernstein. “The goal is to create a well-rounded portfolio that can withstand various economic scenarios while pursuing growth opportunities.”
No matter whether Bitcoin and gold win out in the end, one thing is clear: investors seek both assets to shield portfolios from 2024’s economic uncertainties.
Whether choosing gold’s age-old stability or Bitcoin’s digital promise, taking a risk and diversifying into these assets may prove strategically savvy. Cash alternatives’ enduring popularity denotes collective shifts towards safeguarding wealth in an unpredictable world.
This article was produced by Media Decision and syndicated by Wealth of Geeks.
