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The Latest Not-So-Greatest Inflation Investment

·3 min read

Hello, reader.

Dave Gilbert here, Editor of Smart Money.

None of us expect to make history when ordering a pizza, but that’s what happened to Laszlo Hanyecz 12 years ago this month.

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

In late May of 2010, Laszlo paid for his two Papa John’s pizzas with Bitcoin in what is believed to be the first-ever transaction using a cryptocurrency.

Bitcoin was worth about $0.003 at the time, so less than a penny. To pay the $30 tab, he needed roughly 10,000 Bitcoins.

Could this be the perfect trade?

See where this is going?

Those 10,000 coins today would be worth more than $300 million.

But last November, they would have been worth nearly $700 million! Ouch.

That’s how much Laszlo Hanyecz could have had, and it’s also how much Bitcoin has crashed in the last six months – more than 50%.

This is particularly noteworthy during a time of rising inflation, as Bitcoin was deemed by many as the latest greatest way to hedge against inflation.

But Bitcoin fanatics beware – this so-called holy grail of currency isn’t all it’s cracked up to be.

Still the Gold Standard

Inflation remains the financial story of 2022. Its ripple effects are felt in all of the headwinds blowing against the market, from the impact on consumers to the Fed raising rates to supply shortages exacerbated by Russia’s invasion of Ukraine.

If you wanted to hedge against inflation, Bitcoin hasn’t been the way to do it.

Through the first five months of the year, Bitcoin has plummeted 45% while gold – as measured with SPDR Gold Shares ETF (GLD) – is up 3%. The S&P 500 has lost about 11.5%.

So far, anyway, the old-fashioned go-to inflation hedge of gold has held its ground.

JUST REVEALED: Eric Fry’s pick for the Trade of the Decade

Eric Fry saw this coming a year ago. In the June issue of Investment Report, he wrote about the value gold still has, so much so that people still mine it even though the California Gold Rush ended 167 years ago…

Clearly, inflation isn’t good for much. It squeezes profit margins and undercuts the value of our savings. But inflation can be a “friend” to hard assets like real estate, commodities, and precious metals. In fact, inflation and gold have been “BFFs” for centuries. And they probably remain close friends today, even in this modern cryptocurrency-enabled age.

Which returns our story to the dehydrated Folsom Lake [in California]. As its waters dried up [in 2021], its lakebed exposed the timeworn antidote to inflation: gold.

The lake’s receding shoreline revealed the old California Gold Rush towns of Salmon Falls and Mormon Island – 170-year-old settlements that were once home to about 2,500 Gold Rush settlers. Remnants of their way of life are now visible… as are occasional glimpses of the gold they sought.

Elsewhere in California, water levels are falling to such low levels that several long-sunken ghost towns are rising from the shallows. As they do, modern-day prospectors are gaining fresh access to gold deposits that had been inaccessible for decades.

Some of these modern-day “panners” are still pulling gold nuggets and flakes from the state’s historic Gold Rush waterways… and that gold still possesses value, just like it did in 1849.

Until proven otherwise, therefore, I’m betting gold will continue to offer a store of value for decades to come and am trusting it to provide at least partial protection from any serious bout of inflation.

Yes, I know, the ancient monetary metal is “so yesterday” and seems utterly irrelevant in a world dominated by bitcoin and other cryptocurrency marvels.

Many are the new-era apologists who scorn the yellow metal as a monetary has-been that is too cumbersome and, well, too physical to provide a store of value in a digital world.

But I suspect the “barbarous relic” still possesses some relevance in the modern era… perhaps even a relevance that is inversely correlated to cryptocurrencies!

In other words, gold might not only function as a hedge against inflation, but also as a hedge against slumping cryptocurrency prices… if that were to occur. [Editor’s Note: It sure did.]

The jury is still out on gold’s supposed irrelevance, compared to crypto’s presumed superiority. Until the jury returns, I recommend an allocation to the asset that has been battling inflation successfully for centuries.

That said, most of us don’t want to huddle over California streams for hours to acquire gold. We’d rather shop for it on Wall Street.

Many folks buy the SPDR Gold Trust ETF (GLD) as their one-stop gold play. I wouldn’t argue with that approach, but in Fry’s Investment Report, I have recommended a balanced allocation to gold and silver that includes exposure to both physical metal and select mining company stocks.

Some day, we may indeed use Bitcoin or another cryptocurrency to pay for pizza. And some day, Bitcoin may be the best hedge against inflation.

That day hasn’t come yet. So perhaps the ancient metal that has captured imaginations for thousands of years is still able to hold its value, even as many investors get enamored with the new high-tech world of cryptos.

We all hope inflation will be under control sooner than later. In the meantime, gold appears to remain – well – the gold standard when it comes to hedging against it.

Sincerely,

Dave

P.S. Eric Fry believes his newest plays could be some of his best ever

In fact, Eric is so eager for people to learn about this exciting opportunity, he’s even agreed to reveal one of the stocks he recommends as a way to play this trend, completely for free. Watch this time-critical presentation, and you’ll get the name, ticker symbol, and much more – just for showing up.

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