Crypto neutralises gold as inflation hedge

gold cryptocurrencies

The attraction investors have shown toward cryptocurrencies has meant gold has not provided its past traditional hedge against inflation.

Gold has not played its traditional defensive role in the current inflationary climate due to the investor interest cryptocurrencies have attracted in recent times, a leading economist has said.

“Normally you would have expected gold [prices] to go up with these worries about inflation. It hasn’t gone up I think because crypto has sucked the air out of gold buying,” AMP Capital head of investment strategy and chief economist Dr Shane Oliver said.

“So there is a pool of investors who may have bought gold as a hedge against inflation, that hasn’t happened, they’ve been buying crypto as part of the scramble or bandwagon to get into cryptocurrencies and seeing that as a hedge against inflation. So that’s what’s happened there,” he added.

AMP Capital senior economist Diana Mousina recommended an alternative strategy to guard against inflation that would allow investors to avoid the volatility of cryptocurrencies.

“We still think that if you are exposed to the share market then that will give you [high] enough returns to offset some of those inflationary pressures that we have. And hopefully in 2022 we won’t see inflation come in at multi-decade highs and [it will] start to come down a little bit,” Mousina said.

Further she pointed out inflation should not be as much as a concern in the Australian market as opposed to the US economy.

“The Australian inflation numbers are still very well contained. I think it’s just a bit of a frenzy going on at the moment thinking that what’s happening in the US will be replicated here in Australia but our latest inflation numbers weren’t really anything to get too concerned about,” she explained.

“We’re now just starting to see that the core reading of inflation is just getting right into the bottom of the arc of the RBA’s (Reserve Bank of Australia) target band.

“We haven’t been in the RBA’s 2 to 3 per cent inflation target band since about 2014 so the inflation pressures here are not the same as what is happening in the US,” Mousina concluded.


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