Putting money in store of value investments like gold, real estate, stocks and crypto helps curb inflation.
As cash loses purchasing power over time, keeping cash leads to people losing their savings. This has prompted people to put their money in store of value investments such as gold, real estate, stocks and, now, crypto. Will Bitcoin protect against inflation has been a question in the town ever since.
To be held as a store for value, an asset should be able to hold its purchasing power over time. In other words, it should increase in value or at least remain stable. Key properties associated with such assets are scarcity, accessibility and durability.
Gold as a hedge against inflation
During past inflationary periods, gold has had a mixed track record. In the 1980s, there were times when holding gold gave negative returns to owners.
Morningstar data gives a peek how gold has had a spotty track record during past inflationary periods. A commodity that is supposed to hedge against inflation is expected to rise when consumer prices are going up. During periods of high inflation, particularly in the 1980s, there were times when gold owners ended up fetching negative returns.
In recent times, gold has slowly lost its luster as a hedge. During the pandemic and even when waves have subsided, people are showing less interest in gold. It is still viewed as good enough for holding value in the long term, but for the short term, the metal is seen as less reliable now.
Real estate as a hedge against inflation
The popping of the U.S. housing bubble underlined that real estate couldn’t always be trusted as a hedge against inflation.
For a long time, real estate has been regarded as an effective hedge against inflation. This myth, however, was busted in the United States housing bubble. In March 2007, home sales and prices in the country suffered from a sharp fall. As National Association of Realtors (NAR) data reveals, sales dropped 13% to 482,000 from the peak of 554,000 in March 2006.
In America and around the world, real estate prices are closely linked with factors like government policy, political and…