◼ FINANCE Bloomberg Businessweek August 31, 202028
rose just 1% for the 12 months ended in July, and bond
prices imply that fixed-income investors are looking
for only a 1.7% annual rate over the next decade. One
case for hedging is that inflation would only have to
overshoot expectations a bit to shock the system. “A
rate of inflation at 3% is hardly hyperinflation, but
3% inflation per annum can erode your wealth by
half in under 25 years,” says Nikhil Chandra, invest-
ment director of real assets at Aviva Investors. He
argues for income-producing investments such as
real estate as a way to stay ahead of prices.
Whether gold would provide the protection inves-
tors hope for is a more complicated question. “Gold is
an unreliable inflation hedge,” says Campbell Harvey,
a finance professor at Duke University. Harvey and
his research colleagues have found that gold has held
its value remarkably well since Roman times, yet
it’s prone to manias and crashes over shorter peri-
ods. Right now, on an inflation-adjusted basis, gold
is expensive relative to its past prices. If it reverts to
its long-term average, investors who joined the rally
late could lose a lot of money.
Cryptocurrency investors are driven by some of
the same thinking as gold buyers. The way some
digital tokens are designed to be limited in supply
leads investors to hope they could hold their value
if paper currencies fall. The price of one Bitcoin, the
best-known cryptocurrency, is up roughly 60% this
year, to about $11,500. “Gold, Bitcoin—both of them,
I think, are protections just against this uncertainty
that’s out there,” says Michael Novogratz, founder and
chief executive officer of Galaxy Investment Partners.
He has about a quarter of his net worth tied up in
cryptocurrencies and related businesses.
Similar to gold, says Novogratz, Bitcoin derives
much of its value simply from people believing it’sOne lunchtime in 2009, as the U.S. Federal Reserve
started purchasing Treasuries in the aftermath of
the global financial crisis, Richard Hodges stepped
out of his office to buy his first gold bar in the City of
London. Over the next decade, he built up his per-
sonal collection to several kilograms’ worth, stored in
his “own little Bank of England basement.” Hodges,
who also works as a money manager at Nomura
Asset Management, thinks central banks’ stimulus
has ushered in an “age of currency and asset price
manipulation.” He’s betting that physical, tangible
gold could retain its value if all of that goes wrong
and paper assets crumple. “I even stack these little
bars like they do in the movies,” he says.
Ever since the financial crisis, a chorus of investors
and pundits has warned that near-zero interest rates
and the Fed’s bond buying would flood the economy
with dollars, drive up consumer prices, and create
market bubbles that were bound to burst. Yet infla-
tion has been tame for the past decade, global equi-
ties have returned more than 150% with dividends,
and long-term bonds doubled investors’ money. Not
even the pandemic and its recession have wiped out
those gains. The spot price of gold has risen a total of
less than 60% in 10 years. If the precious metal was
a hedge, it was against a disaster that didn’t come.
Still, gold has seen a surge in demand lately.
Hodges bought his most recent bar in May, and his
timing could hardly have been better. Three months
later, the metal hit a record $2,064 an ounce, up from
$1,700 at the start of May. It’s currently around $1,920.
Anxiety about inflation is once again in the air, par-
ticularly among individual investors. Even if the past
decade of stimulus wasn’t enough to conjure higher
prices, the thinking goes, the Fed’s additional moves
since the pandemic began may do the trick. Along
with gold, people are stashing away Bitcoin and even
whisky as they search for hedges.
It’s not necessarily that investors think inflation
will spike dramatically. Consumer prices in the U.S.● Inflation may be low, but some investors are
still hoarding stuff just in case it hits the fanSend Gold,
Bitcoin, and
Whisky
1/2009 7/2020250175100$2.0k1.51.0$14k70▼ Whiskey price index▼ Bitcoin price▼ Gold, price per
troy ounceILLUSTRATION BY XAVIER LALANNE-TAUZIA. DATA: WHISKEYSTATS WHISKEY INDEX, AN AGGREGATE MEASURE OF THE PRICES OF THE 500 MOST TRADED WHISKIES, BLOOMBERG. ALL PRICES AS OF MONTH’S END