Gold and cryptos as an inflation hedge?
Deutsche Bank study comes to a different conclusion
recession expected
Fear of inflation weighs on the stock market
The specter of inflation is currently haunting the markets. Price pressure has been at a high level for weeks, and only in May did the inflation rate in Germany reach its highest level since 1973 at 7.9 percent euro zone According to Eurostat, prices rose significantly in the past month. In the USA, a slowdown in growth has recently been discernible, but prices are still at a high level. Investors now fear the publication of economic data because they fear that the central banks’ possible reactions to the price pressure will slow down the economic upswing or even bring it to a standstill.
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Gold and Bitcoin against inflation?
In addition, there is still an assessment on the market that an investment in gold – as a safe haven – is suitable as protection against inflation, but with the increasing demand for cryptocurrencies, Bitcoin, Ether & Co. are also becoming popular investments to protect against rising to position prices.
Deutsche Bank study identifies anti-inflation assets
However, a study by Deutsche Bank available to “MarketWatch” paints a different picture. Accordingly, the yellow precious metal and the digital currencies are not the first choice of the more than 560 investors surveyed between May 25 and 27, 2022 when it comes to protection against high inflation rates. For example, 43 percent of the investors surveyed by the financial institution stated that they wanted to focus primarily on real estate in an environment of persistently high inflation. “Despite the global surge during the pandemic, real estate is the preferred store of value in an inflationary environment, while stocks have overtaken gold despite its tremendous outperformance during the inflationary 1970s,” said chief strategist Jim Reid, according to the portal.
Cryptocurrencies bring up the rear
The top investment of the investors surveyed is not followed by gold, which is supposed to protect against inflation, but by equities from developed markets with a share of 33 percent. Only in third place – with a share of 15 percent – is the yellow precious metal mentioned. Cash was named at four percent, followed by loans (three percent) and government bonds (two percent) from developed markets. Only one percent of the investors surveyed trust cryptocurrencies in an environment of high inflation rates.
Participants expect recession by the end of 2023
According to MarketWatch, when asked how the price pressure can be eased again, 69 of the respondents answered that it would take a recession, with 61 percent expecting the US Federal Reserve to ease its stance monetary policy will actually adjust in this regard. If there were to be an economic downturn in the US, according to 78 percent of the participants, it would probably happen by the end of 2023. April (61 percent) and February (31 percent) of the coming year were also mentioned frequently.
Recession as “baseline scenario”
The Deutsche Bank analysts themselves are now also anticipating a recession. For example, strategists Peter Hooper, Matthew Luzzetti and Matthew Barnard recently discussed in the Podcast “Podzept”, which is published by the financial institution, that the economic slump at the end of 2023 should be seen as the “baseline scenario”. And Reid himself explained in an analysis back in April that the recession will be here at the end of next year – and will be much more drastic than previously expected. “The combined effect will result in the US economy entering a significant recession by the end of 2023, with unemployment rising by several percentage points,” the expert said. “As we discovered in the 1970s and 1980s, this will be tough, but the only way to minimize the economic, financial and social damage of persistent inflation is not to do too much. Otherwise, inflation will only accelerate consolidate even more, cause further damage and require even more severe measures to be removed.”
Rate hikes expected
As a reaction to the high inflation rates, the US Federal Reserve will raise the key interest rate by 75 basis points over the next 18 months, according to around 25 percent of the study participants. More than half of those surveyed meanwhile assume that the European counterpart, the European Central Bank, will bow to the guidelines from the USA and a rate hike will perform by 50 points. The market expects a first rate hike by the European currency holders in July.
The stock market has not yet bottomed out
But what consequences could these developments have for the stock market? Most recently, the leading US indices have been under significant pressure, the S&P 500 just barely missed a bear market: In May, the index, which maps the 500 largest listed US companies, temporarily slipped into a bear market mode during trading. This occurs when an index is trading at least 20 percent below its recent high. For the S&P 500, this was 4,818.62 points on January 5, 2022, and the stock market barometer is now 4,017.82 points, 16.62 percent lower (as of June 9, 2022). So is the US stock market moving away from its current lows? In any case, participants in the Deutsche Bank survey seem to see things differently. Around two-thirds of those surveyed assume that the bottom has not yet been reached and that the broad market is likely to continue to decline.
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