Selling Crypto NOW: This Commodity Is The Best Hedge Against Inflation

The 2022 roller coaster investment landscape continued to be derailed last week with the news that FTXone of the largest crypto exchanges run by prodigy Sam Bankman-Fried, was using customer deposits to perform unauthorized transactions.

This forced the company into bankruptcy, put Bankman-Fried in the crosshairs of regulators, and once again shattered confidence in the fledgling crypto industry. The image of crypto-currencies as an asset class will be permanently damaged. Stay away from crypto investments until the dust settles, as the money will be out of the space at least until the end of the year.

Crypto Money Flows To Gold

But where will this money go?

Investors had flocked to the crypto industry, especially Bitcoin (BTC-USD), to defend against rising inflation that accelerated after the excessive printing of money that occurred after Covid-19. If you can’t invest your capital in crypto assets due to uncertainty about future regulations and the risk of total loss from “stolen” foreign exchange deposits, where can you go to find a place to store our wealth? and maintain your purchasing power in this current sticky environment? inflationary environment?

Fortunately, there is an asset that has stood the test of time, which protects against the debasement of paper money and protects against inflation. John Maynard Keynes called it a “barbaric relic”. This asset is gold and it is time to buy.

I see four main reasons to buy gold now. First, investors continue to search for a “store of value” asset because money printing is not going anywhere anytime soon. Gold will now see the reverse of silver flows that had entered the crypto space over the past few years. After the FTX debacle, investors will retreat to the safety of gold as they remain concerned about the depreciation of paper money.

Santa’s seasonality is gold’s friend

Second, gold is entering its seasonally strong period for the year. Gold has risen in December five years in a row and has also risen in January seven of the last nine years. While investors often associate Santa’s rally with stocks, gold has historically seen many of these same inflows as investors reposition portfolios at year-end.

Third, this year has seen tremendous strength in the US dollar thanks to the Federal Reserve’s interest rate hike cycle. This tightening has started to affect various parts of the economy, particularly in interest rate sensitive sectors such as housing and automobiles. I think interest rate hikes will continue through early 2023 to keep trying to slow inflation, but eventually fears of slowing growth will take over and the Fed will likely pause its rate hike program. Historically, gold has tended to anticipate these shifts in Federal Reserve policy and will begin to outperform as investors begin to believe that the Fed is about to inject liquidity back into the system. As this liquidity will lead to a weaker dollar, gold will be a big beneficiary.

The militarization of the Dollar Aids Gold’s Allure

Finally, with the war between Russia and Ukraine, the United States weaponized the dollar by imposing sanctions on Russian dollar reserves for its behavior. As Russia has been forced to sell its commodities away from the US dollar, it has increasingly settled transactions in non-US dollar currencies like the Chinese yuan and Indian rupee, but is also looking to settle more gold transactions.

Over time, as more and more foreign governments and central banks see how the United States can use its sanctioning power over the dollar to hamper its ability to trade and save, we will continue to see more ‘them use gold as a neutral settlement asset. Central banks, particularly in emerging markets, keep accumulating gold as a store of value out of fear that at some point in the future the United States will view them as a possible enemy actor.

Gold should have a place in everyone’s wallet. The exposure is expected to depend on the current risk seen in the financial system and the extent to which foreign governments and central banks will again resort to money printing to solve their problems. Amid a slowing growth world with still high inflation, de-globalization and renewed geopolitical tensions, gold is a must.

Since central banks are likely to print money again, increasing your exposure to gold here provides excellent ballast to your portfolio and will protect you from inflation better than crypto assets ever could.

As of the date of publication, Craig Shapiro held long positions in Bitcoin and gold. The opinions expressed in this article are those of the author, subject to Publication guidelines.

Craig Shapiro is the Macro Advisor at LaDuc Tradinga trader education service for professional retail traders and institutional clients.

#Selling #Crypto #Commodity #Hedge #Inflation #Crypto

Related Articles

Back to top button