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In times of crisis turn to gold for your hedging
Gold as an inflation hedge? It’s a well-known investment strategy to buy gold during times of war and rising inflation. A risk that’s at the top of every investor’s mind today.
Inflation has emerged as a primary concern for investors. And so, investors look to protect against it. With markets still battling COVID, rising inflation, and higher energy and food prices, the Ukraine crisis is all compounding this volatility. In such times, investors flock to gold, a haven in turbulent times.
Jodi Stanton, Rush Gold CEO, says: “This crisis is unfolding with analysts unable to predict what tomorrow will hold, let alone next month. What we do know is that the gold price has rallied again in the wake of a geopolitical crisis. On Friday, the price of gold opened strongly, and despite a slight downturn is still sitting at a higher price of US $1,900 per ounce (A$2,676).”
“The appeal of gold in times of crisis has not changed for 4,000 years. What has changed recently is that technology is now driving the way investors can trade gold, increasing their ability to secure it and transfer it almost instantaneously without having to use a broker,” says Stanton.
Some investors have protected themselves by investing in assets that maintain their value over time; a category that historically contained gold. But now crypto has become a more popular alternative over recent years.
“The other thing that is becoming clearer is whether Bitcoin is a ‘hedge’ in the way that gold is,” says Stanton “We’ve always been of the view that gold and Bitcoin serve entirely different functions, and this is being borne-out in markets, with Bitcoin correlating to riskier assets like shares and gold showing clear hedging and capital preservation traits in times of turmoil.
“The next period is going to be a time of learning and adaptation as the world grapples with yet another geopolitical crisis in a digital economy. The one thing that can be determined though is gold as a currency has already weathered every single crisis down throughout history, but this time with the added benefit of being recently modernised to suit the current climate. With unparalleled accessibility and liquidity, the world’s oldest trusted currency is now the newest,” Stanton says.
All in all, gold has been the go-to hedge against inflation for many years; Bitcoin has emerged as the contender and can be described as “digital gold.” But there is little correlation between them during times of risk-off. Gold has been outperforming Bitcoin since Russia started the attack on Ukraine. But early this week, Bitcoin prices started to recover after Western sanctions made it harder for the Russian central bank to transact. This forced Russians to shift to Bitcoin.
