Bitcoin on a pile of gold.
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Gold: the better portfolio stabilizer
The analysts also questioned the comparisons often made between gold and bitcoin due to the volatility gap as well as the extent of their price movements. Some investors have argued that the cryptocurrency is a potential competitor to gold as a store of value.
Since the beginning of the year, spot gold has fallen by around 1.2%. In a similar period, Bitcoin is still up around 38% despite its recent decline.
The only potential reward for investors in Bitcoin and gold is their positive price movement, which is essentially the only thing they have in common other than their ability to trigger rush purchases.
Alain Bokobza and Arthur Van Slooten
“We agreed that investors see both as protection (or at least as an alternative) against official central bank money, the value of which is being undermined by unprecedented monetary and fiscal stimulus,” said Bokobza and Van Slooten.
Authorities injected record liquidity into the world’s economies in 2020 to keep financial markets alive as the world struggled to contain the damage caused by the Covid pandemic.
But without making a return on their own, “the only potential reward for investors in Bitcoin and gold is their positive price movement, which is essentially the only thing they have in common other than their ability to trigger rush purchases,” the analyst said .
Societe Generale currently assigns a direct weighting of 5% to gold as a stabilizer in its multi-asset portfolio.
In the event of rising inflation, gold can “partially offset capital losses on bonds,” the analysts said. In addition, gold also plays a “protective role in partially offsetting losses” in stocks when inflation is out of control or when deflation returns.
“History shows that the price of gold closely tracks real bond yields over time,” the analysts said. “The price ratio of copper (the most cyclical metal) to gold (the most defensive) has also proven to be a good model for expecting higher yields on US Treasuries.”