First Mover: Gold Is Crushing Bitcoin, But Inflation May Bring the Cryptocurrency a Boost

Is physical gold leaving digital gold behind?

It’s a question worth asking, with the yellow metal having rallied over the past four trading sessions to reach a new eight-year high, around $1,725 an ounce.

Gold spot price since 2012.
Source: TradingView

Gold is up 14 percent in 2020, a superlative performance in what has been an annus horribilis for many traditional markets: stocks, oil and industrial metals like copper and aluminum.

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And what about bitcoin, seen by many investors as a digital form of gold, due to its perceived use as a hedge against inflation? It’s down 4.1 percent on the year.

Source: TradingView

The gap between gold and bitcoin returns has frustrated traders who predict that trillions of dollars of coronavirus-related emergency aid and monetary stimulus from the Federal Reserve and other authorities will eventually lead to inflation.

The International Monetary Fund on Tuesday estimated that the global economy will shrink 3 percent this year, down some 6.3 percentage points below its most-recent projection in January. What’s changed, of course, is the pandemic, which has led to business disruptions and travel cancellations while cratering energy demand and decimating consumer spending.

“The magnitude and speed of collapse in activity that has followed is unlike anything experienced in our lifetimes,” the Washington-based organization’s chief economist, Gita Gopinath, wrote in a blog post.

IMF Economic Growth Projections.
Source: International Monetary Fund World Economic Outlook.

Recessions are often deflationary: Lower demand alleviates upward price pressure on products and services, while…

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