Why Goldman’s top commodity analyst views copper as an alternative to crypto

Why Goldman’s top commodity analyst views copper as an alternative to crypto


Workers pour gold from a crucible into a mold at the ABC Refinery foundry in Sydney, New South Wales, Australia, Thursday, July 2, 2020.

David Gray | Bloomberg | Getty Images

LONDON – Cryptocurrencies are an alternative to copper – do not gold – when it comes to hedging against inflation, according to Jeff Currie, global head of commodities research at Goldman Sachs.

Inflation rises as the global economy recovering from the effects of the current Covid-19 crisis, central banks are maintaining historically loose monetary policy, and demand is outstripping supply on several fronts. The US Federal Reserve’s preferred inflation index, the basic index of personal consumption expenditure released on Friday, rose 3.1% in April compared to the same period last year, exceeding expectations.

Gold and crypto have been offered as a hedge against rising prices, with crypto bulls in some cases defending bitcoin as a modern replacement for bullion. Inflation hedges aim to protect the investor against a decline in the purchasing power of money due to rising prices.

Gold prices have risen by nearly $ 200 since the start of April to reach a four-month high, fueled by a weaker U.S. dollar and increased demand due to rising expectations for ‘inflation.

Meanwhile, cryptocurrencies have been on a wild ride. Bitcoin, for example, is up over 25% since the start of the year, but down over 25% in the past three months.

Speaking to CNBC’s “Squawk Box Europe” Tuesday, Currie said investors shouldn’t see digital currencies as a substitute for gold when looking at inflation hedges, but instead noted their similarities to copper.

“You look at the correlation between bitcoin and copper, or a measure of risk appetite and bitcoin, and we have a 10-year history of trading bitcoin – it’s definitely a risky asset,” Currie said. He noted that bitcoin and copper act as “risk-free” inflation hedges, relative to gold, which is considered a safe haven, or “risk-free”.

Copper hit all-time highs in mid-May before falling sharply towards the end of the month, only to rebound again last week.

“There is good inflation and there is bad inflation. Good inflation is when demand pulls it, and that’s what bitcoin covers, that’s what copper covers, that is. what oil covers, ”Currie said.

“Gold covers bad inflation, where supply is tight, which focuses on shortages of chips, commodities and other types of commodities. And you would want to use gold as a hedge,” he said. he added.

Inflation and “ anticipated ” rate hikes

Meanwhile, in a note Monday, Goldman Sachs suggested that commodities remain the best inflation hedge overall for investors looking for protection against a possible slowdown.

In the note, Currie’s commodities research team noted that since stocks value earnings and growth expectations, they are a good hedge of “expected inflation.” However, once inflation expectations become looming enough to suggest central banks may be forced to raise interest rates, stocks cease to be as useful as an inflation hedge, they argued. .

“Commodities are spot assets that do not depend on forward growth rates but on the level of demand relative to the level of supply today,” the note said.

“As a result, they cover for unforeseen short-term inflation created when the level of aggregate demand exceeds supply in the later stages of the business cycle.”

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