Cryptocurrencies, gold and inflation has been in the headlines lately with higher than usual volatility. What has been happening with gold and crypto as alternative asset classes? And how is inflation affecting various asset classes? 

Investing, Risk & Volatility

Investing has risks. And every investment has volatility.

Different asset classes will perform differently in different economic conditions. Thus the importance of being properly diversified and regularly rebalancing your investment portfolio.

With that said, let us explore with a quick overview to get us up to speed on what has been happening with crypto, gold and inflation that has been in the headlines of late.

 

Bitcoin & Cryptocurrencies

Bitcoin and most altcoins have been on a decline. BTC has plunges from a record high of $65,000 in April to below $30,000 at one point wiping out virtually all gains in 2021 YTD.

  • Tesla/Elon’s comments: Elon Musk tweeted that Tesla would stop accepting Bitcoin payments citing environmental concerns.
  • China ban: China banned crypto mining causing a decline of ~45% in hash rates as mining moves to other continents.
  • Death cross: Bitcoin trades below a death cross when the 50-day simple moving average (SMA) fell below the 200-day SMA.

Newer crypto investors may be a bit shaken up if there are not used to seeing their crypto holdings in the red. Veteran crypto investors with diamond hands are less shaken having been more accustomed to the volatility and going through previous dips such as as the 2018 crypto crash.

If you have been keeping your crypto holdings to 5% or less of your portfolio and have a long-term strategy for your crypto portfolio, chances are you will be less worried about the recent correction.

 

Gold & Precious Metals

Gold prices have been falling with an expected reduced remand for gold.

  • Higher interest rates: US Federal Reserve projected 2 interest rate hikes by the end of 2023.
  • Rising inflation:  Feds surprisingly hawkish tone for higher interest rates and a stronger US dollar.
  • Profit taking: there was some profit taking which caused the price of gold to further drop.

Gold is viewed as a store of value keeping up with inflation and providing stability during times of market stability. However, a stronger US dollar typically results in gold declining as it makes gold less attractive as an asset to investors. Digital gold aka Bitcoin is not expected to have an immediate impact on gold with many still viewing crypto as speculative and highly volatile.

 

Inflation

US inflation has hit its highest level since 2008. US consumer spending remained flat while infrastructure spending is likely to help boos the US economy. Global markets are still impacted with worse-case scenario fears of Feds pushing interest rates higher to bring down inflation and triggering a recession.

Malaysia’s inflation rose 4.4% year on year in 2021 May according to the Consumer Price Index (CPI). This was mainly driven by rising

  • Housing, water, electricity, gas and other fuels (3.2%)
  • Furnishings, household equipment and routine household maintenance (2.1%)
  • Food and non-alcoholic beverages: 1.5%

Bank Negara Malaysia expects headline inflation to increase in 2021 2H. Overall economists forecast inflation to stay at 3% in 2021 and interest rates to be maintained. In comparison, Malaysia’s inflation fell by -2.2% in 2020. Malaysia continues to face high unemployment, expanding fiscal support, and weak economic activity.

 

Overall

Do note of your overall ideal asset allocation that fits your investment goals and investor risk profile. For example, if your crypto exposure is only a small part of your overall portfolio, even if crypto becomes worthless it will not derail your financial plan. Get your investment plan properly planned out. And then stick to your investment plan in the face of short-term volatility.

 

What’s your outlook on gold, crypto and other asset classes?

 

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