Is Gold The Right Inflation Hedge

Is Gold The Right Inflation Hedge

Yesterday, the big news was the ๐ฐ๐ž๐š๐ค๐ž๐ง๐ข๐ง๐  ๐จ๐Ÿ ๐ญ๐ก๐ž ๐ˆ๐ง๐๐ข๐š๐ง ๐‘๐ฎ๐ฉ๐ž๐ž ๐š๐ ๐š๐ข๐ง๐ฌ๐ญ ๐ญ๐ก๐ž ๐”๐’๐ƒ. So a journalist from a media publication called and asked about the impact of the weakening rupee on the Indian economy and IT services industry. When i gave my opinion, I looked at #goldย prices because conventional wisdom says that ๐—ด๐—ผ๐—น๐—ฑ ๐—ถ๐˜€ ๐—ฎ ๐—ต๐—ฒ๐—ฑ๐—ด๐—ฒ ๐—ฎ๐—ด๐—ฎ๐—ถ๐—ป๐˜€๐˜ ๐—ฐ๐˜‚๐—ฟ๐—ฟ๐—ฒ๐—ป๐—ฐ๐—ถ๐—ฒ๐˜€ ๐—ฑ๐˜‚๐—ฟ๐—ถ๐—ป๐—ด ๐—ต๐—ถ๐—ด๐—ต ๐—ถ๐—ป๐—ณ๐—น๐—ฎ๐˜๐—ถ๐—ผ๐—ป๐—ฎ๐—ฟ๐˜† ๐—ฝ๐—ฒ๐—ฟ๐—ถ๐—ผ๐—ฑ๐˜€. However, gold prices are declining as the Indian rupee.

๐—ฆ๐—ผ ๐˜„๐—ต๐˜† ๐—ด๐—ผ๐—น๐—ฑ ๐—ฝ๐—ฟ๐—ถ๐—ฐ๐—ฒ๐˜€ ๐—ฎ๐—ฟ๐—ฒ ๐—ป๐—ผ๐˜ ๐—ถ๐—ป๐—ฐ๐—ฟ๐—ฒ๐—ฎ๐˜€๐—ถ๐—ป๐—ด ๐˜„๐—ต๐—ฒ๐—ป ๐—ถ๐—ป๐—ณ๐—น๐—ฎ๐˜๐—ถ๐—ผ๐—ป ๐—ถ๐˜€ ๐—ต๐—ถ๐—ด๐—ต ๐—ป๐—ผ๐˜„?
I believe gold’s value does not fluctuate as it has a limited supply and thus has a fixed value compared to currencies (we can print currencies as per our wish). So when gold prices increase, it implies that other assets/currencies have depreciated, not that gold has appreciated.

Let us take USD. When theย #fedย hikes interest rates, it limits the supply of USD making it strong against gold. On the contrary, rising debts and printing money to repay debts debase currency making it weaker against gold.

๐™ƒ๐™ž๐™œ๐™ ๐™ž๐™ฃ๐™›๐™ก๐™–๐™ฉ๐™ž๐™ค๐™ฃ ๐™๐™–๐™ฅ๐™ฅ๐™š๐™ฃ๐™จ:

1)When governments (Venezuela and Zimbabwe are instances) print much money, the debt grows faster than GDP.

2)Supply shocks to commodities likeย #oilandenergyย can push the demand for commodities, causing prices to rise. Here, we are not talking about currency debasement but where demand is more than supply. We can extend this argument to theย #realestateย market, where underinvestment in housing projects causes high demand for housing spiralling up real estate prices.

In scenario 1, gold prices rise; in scenario 2, gold prices do not rise.

So how are governments globally handling these high inflation issues?
First, the reserve banks understand that supply lags demand, but instead of improving supply, the fed increases interest rates to suppress the demand, strengthening the USD.

When i look at VC investments in the past five years, they have allocated more capital towards SaaS and the food delivery business against skilled labour/housing/energy production. Thus, we see higher demand for the latter than the former.

Thus, ๐—ด๐—ผ๐—น๐—ฑ ๐—ถ๐˜€ ๐—ป๐—ผ๐˜ ๐—ฎ ๐—ฐ๐—น๐—ฎ๐˜€๐˜€๐—ถ๐—ฐ ๐—ถ๐—ป๐—ณ๐—น๐—ฎ๐˜๐—ถ๐—ผ๐—ป ๐—ต๐—ฒ๐—ฑ๐—ด๐—ฒ ๐—ถ๐—ป ๐—ฎ๐—น๐—น ๐—ถ๐—ป๐—ณ๐—น๐—ฎ๐˜๐—ถ๐—ผ๐—ป๐—ฎ๐—ฟ๐˜† ๐—ฝ๐—ฒ๐—ฟ๐—ถ๐—ผ๐—ฑ๐˜€.



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