With the price of gold down more than 11% in the past six months, some investment managers are questioning gold’s status as a hedge.
According to Bloomberg, Russ Kesterich, portfolio manager of the BlackRock Global Distribution Fund, gold does not currently appear to be a viable hedge against inflation.
Indeed, Kosterich refuted the popular narrative about gold by stating: The ability of gold to protect against inflation has been somewhat overestimated. While it provides a reasonable valuation reserve over a very long period – think centuries – it is less reliable over most investment horizons.
The current investment horizon seems to be dominated by the impact of the coronavirus pandemic and the various government responses in the form of stimulus packages.
Against the backdrop of massive economic stimulus spending, inflation fears are now palpable.
Since reaching a new all-time high of $2,100 per ounce in the summer of 2020, gold has steadily declined, trading above $1,700 at the time of this writing.
The fall in gold prices has also led to significant outflows from gold ETFs, with some market analysts saying investors are turning to bitcoin (BTC). In November 2020, Chinese banks began suspending the creation of new precious metals trading accounts due to increased volatility in gold prices, such as gold.
Unlike the spot price of gold, bitcoin is up nearly 90% since October 2020 as the largest cryptocurrency by market capitalization continues to show a positive price trend since October 2020. As Cointelegraph previously reported, Bloomberg senior strategist Mike McGlone said BTC is pushing gold back as a value asset.
Kesterich’s warnings that gold is a hedge in the current investment horizon have replaced BlackRock’s rather positive comments about bitcoin.
The world’s largest asset manager had already identified bitcoin derivatives as a potential investment when it filed with the US Securities and Exchange Commission earlier this year.
In November 2020, Rick Reeder, chief investment officer at BlackRock Financial Management, said bitcoin could largely displace gold.